When most people think of pay structures, they think of merit or performance. The amount of money you get is based roughly on the quality and quantity of your contribution to the company. This is why the accountant of a company, for example, makes more than the receptionist, a more productive salesman makes more than a less productive one and why senior executives with greater responsibilities make more than entry-level workers.
“The default in business is performance-based pay. In other words, if you suggest something besides that, it raises questions or eyebrows,” says John Deckop, a professor of human resource management at the Fox School.
However, performance-based pay isn’t the only type of system out there. Egalitarian pay practices are relatively unknown. But Deckop, along with his co-authors David Morand at Penn State and Kim Merriman at the University of Massachusetts, has sought to better understand how this novel approach works in a paper published in the Human Resource Management Journal.
Egalitarian pay is a structure of payment that lies somewhere between the polarities of complete proportionality and complete equality. It goes beyond trying to decipher a worker’s individual input, instead placing some value on intentional equal treatment. In practice, this can play out as a fixed limit on the range between the CEO’s and the lowest paid employee’s salary, routine pay raises after a certain period of time for employees, or an increase in the pay floor for employees, as businesses like Gap and Starbucks have implemented.
“Here’s the main point: These companies don’t use the equity argument to defend it. They don’t say, ‘We’ve been underpaying these workers. We’ve been paying them $10 an hour, but they’re really bringing in $20 worth of productivity to our company,’” says Deckop. “Their argument instead is, it’s just wrong to pay someone $7.25 an hour if they’re a part of our organizations, a part of our team.”
Deckop emphasizes that egalitarian pay is not a black or white situation. Rather, it is a continuum, containing various levels. Some mainstream pay practices even find themselves along this spectrum, even though they do not call themselves “egalitarian pay.” Consider holiday bonuses. Nothing about an individual’s performance is factored into these; everyone simply gets one for being a part of the company.
In more recent times, there has been a lot of discussion surrounding another type of egalitarian pay: minimum wage. Proponents of a higher federal minimum wage are asking the Biden administration and Congress to raise it to $15 an hour from the current $7.25. The argument is not necessarily that these workers have increased their performance over the years or that their contributions have grown. Rather, the narrative is simply that these individuals are people, and thus have the right to a “living wage.”
It’s difficult to say precisely why there is such an emphasis on performance-based pay over other types, both practice and in research, but Deckop has two ideas. One is the idea of money as an incentive. If people are rewarded with higher pay for better performance, they will strive to perform better. The other is a justice-based angle: people deserve to be paid according to what they are doing. It is unfair to base it on anything else, as anything else is out of their control.
“We think both of those arguments have severe, significant limitations,” Deckop says. His research specifically outlines how egalitarian pay may instead be considered a more “just” model rather than focusing on employee inputs, either because they are unknown, downplayed for the sake of community and cooperation, or existentially equal.
While Deckop isn’t necessarily advocating for egalitarian pay in his work, he does make explicit best practices clear for how managers and HR departments ought to communicate these practices to their workers. The key element is transparency. Workers want to know why they are being paid what they are being paid.
“For example, when you can’t measure exact employee inputs, tell employees that. Don’t try to say that you can,” Deckop says. “If employees understand and accept that it’s difficult to measure, they’re much more accepting of egalitarian pay.”