CHAPTER 4
ORGANIZATIONAL STRUCTURE: STRATEGIC AND
TACTICAL COMPENSATION ISSUES
The development of an organization includes a number of common or universal steps.
Sometimes, these steps are well verbalized; at other times, major parts remain hidden in the brains of the
founders or top managers of the organization and are revealed only through certain actions. These major
or universal steps in the design and development of an organization include:
1. Establishing its philosophy
2. Identifying its mission
As organizations develop and grow, the relationship among jobs and employees becomes
increasingly complex. Work assignments become more specialized and employee responsibilities,
knowledge, skills, efforts, and contributions vary significantly. To ensure that all efforts are directed
toward a common goal (the attainment of organizational objectives and goals), communication systems
link the many varied human and nonhuman resources of the organization. The reward program of an
organization must be recognized as one of its major communication systems.
To produce their varied goods and services, organizations group employees into basic units that
relate to the kinds of work they perform (specialization). The performance of each job requires
acceptance of specific responsibilities and duties and the acquisition of kinds and levels of education,
experience, and skills. These job-related factors (responsibilities, knowledge, etc.), in turn, influence the
kind and amount of compensation rewards received by these basic groups of jobholders.
Semiskilled and Unskilled Operative Employees
Union Members
Nonunion Employees
Regular Employees
Temporary Employees (Contingent Workers)
The broad group of employees who occupy positions that are exempt from Fair Labor Standards
Act (FLSA) regulations; who are usually not members of unions; and who perform managerial,
administrative, professional, and sales assignments usually have compensation programs that differ from
those offered to the top officials and to the operative, nonexempt members of the organization.
Employees in the exempt group frequently receive some kind of individual pay-for-performance
bonuses or base pay adjustments not usually provided to the nonexempt work force. There is no
significant difference in the benefits received by the exempt group in comparison with those in the
nonexempt category. However, there has been a trickle down of some of the “perks” provided to senior
management, i.e., company car, counseling services, attending professional meetings, spouse travel.
Some organizations are now offering improved stock acquisition opportunities to members of this group.
KEY CONCEPTS:
1. Major groups in a modern organization—board of directors, senior management (executives
and senior managers), operating management, and operative employees.
3. Relatively new groups of workers including paraprofessionals and pink-collar workers.
5. The responsibilities of the members of the board of directors.
7. The compensation of board members.
1. Executive contracts
2. Base pay, benefits, and services
9. Differences in the compensation packages for operating managers, administrators, and
professionals from those provided to top officials and operative employees.
1. To better understand what an incumbent must do in performing job assignments, it is most
2. The world we live in requires that people become more and more specialized. The
3. The term “pink–collar” has been added to the terms “white–collar” and “blue–collar” to focus
4. Regular and temporary, full-time and part-time employees are becoming more important in
the current work scene.
6. The Chief Executive Officer and other members of the select group who comprise the senior
management of the organization are recipients of special and most rewarding compensation
7. Minimum and maximum limits must be established for compensation of operating
managers, administrators, and professionals.
9. Compensation programs for outside sales personnel have special features. Many
compensation plans for sales personnel include salary, commission, and bonus components.