SOME EFFECTS OF PAY POLICY ON PAY EFFICIENCY.

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Abstract
Financial compensation can be viewed as directed at two general purposes for an employer. One purpose is to attract and hold employees as part of what March and Simon have termed the inducements-contributions contract [4, pp. 83-88], the other, to influence behavior on the job. Our current interest is in the latter criterion, behavior on the job. Compensation is often used in ways intended to influence the performance of employees and, by implication, the effectiveness of organizations. There is a widespread belief that pay can have such a positive influence. The relationship between pay and performance clearly depends upon the influence of pay on motivation. Our understanding of this relationship is deficient, despite the magnitude of expenditures on financial compensation and the recent intensity of research activity in the area of work motivation. The scope of the problem is highlighted by the observations of others who have worked in this area. [2, p. 1; 6, p. 94] The research reported below utilized a relatively new approach to the question of the impact of pay. Computer simulation was used to identify the long-run implications of several representative pay policies. The question posed was this, "What is the relative cost-effectiveness of these policies with respect to performance?"

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