Tuesday, July 3, 2012

Random Ponderings on Various Pay Structures

Recently, I was thinking about the various pros and cons of the various pay structures that we use: hourly, salary, and commission. Being an ardent subscriber of the context-driven testing school, I question everything -- even when I'm not testing.

Thought 1: Link to Productivity
Hourly payment is often applied where productivity can be closely tied to time.
Manufacturing - parts per hour
Retail - number of associates needed to handle customer load
Custodial - how much can be cleaned in a given shift

Salary payment is often applied where productivity is linked to accomplishing a task that can require varying time.
Software testing - make sure the system works
Teaching - in addition to classroom time, prep for lessons and evaluate student work
Business executive - run the company

Commission payment is often applied where productivity is connected with sales.
Car salesman - sell more cars, earn more money
Real Estate Agent - sell more homes, earn more money
Mortgage broker - close more loans, earn more money

Thought 2: Productivity ≠ Working Hard
For any given task with a set amount of time, Person A could exude a great deal of personal effort and not complete the task whereas Person B could exude very little personal effort and finish the task with time to spare.

Thought 3: Time = Money
Hourly: The more hours you work, the more you're paid
Salary: The fewer hours you work, the higher your effective hourly rate
Commission: The more sales you make, which in theory means, the more time you use pursuing sales leads, the more you're paid

Thought 4: Salary is a bit of an odd duck
Unlike hourly and commission, the salary payment structure does not have a built in mechanism to actually get paid more than your base rate. A salary employee gets paid the same no matter how many hours he works or how many "tasks" are completed. Salary has other perks though. Generally it has more flexible hours and sometimes you may even get to leave work a little early or take off a few hours without using paid time off. And in comparison to commission, you're still guaranteed to make money. If a salesperson can't close any sales, he won't get paid. And I don't have any data to support this but with all things being equal, I think salary employees generally have a higher base pay than hourly.

Thought 5: Salary systems require integrity to work
In salary situations it is generally stipulated that hours worked in excess of 40 are not paid overtime. Moreover, employers generally require an accounting of time spent which should add up to about 40 hours. But in order for all of this to work, employees have to actually put in their 40 hours and employers have to keep overtime as the exception. In other words, employees shouldn't try to cheat the system and employers shouldn't try take advantage of their workers.

Thought 6: So why would anyone pick one over the other?
Really, that depends on a variety of circumstances. Generally the "choice" is in the choosing of the career. You don't say, I want to do FOO and be paid with structure BAR. Personality has a lot to do with it too. In the past, I've worked a number of hourly jobs. I liked being able to say, "my shift is over, time to go home." I think the pressure of a commission setting would would weigh heavily on me and I wouldn't enjoy it. But now I've been salary for my entire professional career and it's worked out really well because of the cerebral work that I do. Some days I finish a little early and then I don't have to wait for the clock to strike a certain time before heading out. Other days, I get in a thread and I don't even notice that the time is well beyond the average end of the day.

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