Compensation in a knowledge-based world

Today we live in a Political-Social-Economic world of capitalism. A critical factor underlying capitalism as an economic theory is that profit is OK. It is neither wicked nor unacceptable to make money. For capitalism’s success, there must be a strong, direct, and supportive relationship between work and the monitory rewards available through work.

In a capitalistic world, employees must respect money and the challenges of their work to gain satisfaction from work performed.The move of capitalism into knowledge-based world, centers attention on an enlightened society. To be successful in a knowledge-based capitalistic world, there must be a passion for learning that includes a recognition of the need for education.

The main issue here is increasing unacceptable differences between income of the and higher-paid members of society.  The growing disparity of income between the lower-income and higher-income members of society relates directly to the increasing influence of higher levels of knowledge and skills in pay determination.

Those members of society who do not have an adequate or acceptable level of education are going to find themselves in very unenviable position regarding current and future income opportunity. The pay compensation for those with acceptable level of knowledge and skills will rise, while those with minimal levels of required knowledge and skills will see their income opportunity stagnates, even decline.

The Re-engineering—that resulted in elimination of entire levels of management caused decreasing costs and increasing profitability of the organization. For some employees, it meant increased work load with minimal to no change in pay.To others, it has meant the loss of well-paying jobs. To assist their organization compete while functioning with these often conflicting requirements, compensation professionals have had to increase their knowledge and skills dramatically. Because of these advances in knowledge and skills , the importance of compensation profession has risen in the managerial-professional world.

Life Style and Compensation

Gone are the days when anyone would, or could think that money is NOT a motivator. John Milton said over three hundred years ago, “Money brings honor, friends, conquests and riches.” To better understand how t direct or influence human behavior with money, it is critical to recognize the relationship between lifestyle and social classes. The first step in understanding social class is to define it. A social class consists of a group of people of roughly equivalent status in an unequal society. Various criteria such as income, property, occupation, and education are normally used to measure status that differentiate s social classes.

Pay and Social Classes

Typically, today society is divided into three classes—upper, middle and lower.From the dawn of civilization, humanity has been divided into at least two social classes —HAVES and HAVE NOTS.
As families merged into tribes and tribes merged into governments, a small, insignificant social class emerged between the haves and the have-nots. Most members of this middle groups were government administrators, military officers, artists, entertainers, traders, and merchants.During the past five hundred years this middle social group moved from minority to a majority. Today, it is important to recognize the relationship among pay, earnings and income, and social structure within the country.

Today one criterion can be used to determine the class of an individual or family unit, that is INCOME. This results in a typical upper-, middle-, and lower-class division can be further separated into seven subsets. Each of these subsets defines a significantly different standards of living based on family income.


Life Style and Social Classes

To appreciate the importance of employer-provided pay, it is necessary to have an understanding of the lifestyle and standard of living dictated by pay, earnings, and income. Let’s understand this concept in the light of different classes:

The Poverty Class: Those who, unfortunately, are members of the lowest income group are not enjoying the “good life” available to majority. Most of the people in this income group do not have a full-time jobs. A large number of the individuals are illiterate and are school drop outs. Housing is a critical problem for this group. It is not unusual for families of this group to spend from 25 to 50 % of their income on rent and utilities.


The Working Poor: One feeble and fragile step away from complete destitution are the working poor. Many of these individuals hold part- and full-time jobs that pay a wage equal or close to government-established minimum wage.Few individuals in this group has any kind of estates, and major possessions are a well-used auto-mobile or truck, some furniture, and clothing. A major life-improvement goal of those in this group is to move into the lower-middle class.


Lower-Middle Class: Lower-middle class families do not have the luxury of wasting their money. When lower-middle class individuals spend their earnings on frivolous pastimes, they are only one short step away from returning to the lower-income class. They have little to no savings and any kind of financial problem can be disastrous. A major financial problem is loss of job. Without the earnings coming from one of the jobs, a two-wage earner, four member-family can become destitute quickly.

Middle-Middle Class: The individuals or families of this group has income good enough that  payment of monthly bills  does not require extensive manipulation of the family financial resources. At middle-middle class, a little reserve fuel for rainy days begins to develop. Individuals in this class can begin purchasing extra that makes life so enjoyable. A new car every four or five years is possible and no longer a dream. Money to pay for some fashionable clothes is available without cutting back on some other essentials. If anything  happens to eliminate the income of the major wage earner or even one of the wage earners, life style can revert to lower middle-class or even lower income class.

Upper-Middle Class: The individuals or families of this class can afford the comfortable homes in a well-kept secure section of the city. Financial investment becomes become of significant concern to these family members of society. For upper middle class parents public schools are no longer the sole option. Expensive private schools are  a possibility. House furnishings and clothing begin to have feel of luxury. A loss of job or change in job may reduce the family to middle-class status. This could be quite traumatic for those who enjoying the fruits of upper-middle class.

The Wealthy: The number and percentage of such category of people is very small, but they are growing. Successful businessman or professionals (attorneys, physicians, dentists, consultants), entertainers actors, artists, athletes, authors, writers, models, musicians) and sales personnel can expect to have extremely high incomes. With high level of income, these people can develop savings and investments that will ensure them good life for the remainder of their lives.For a wealthy, a second, or even third, home in exclusive vacation areas is easily affordable. Pursuit of distinctive household furnishing is commonplace. Eye catching designers clothing and sleek, high performance automobiles help identify a member’s place in the social order.
In this social class, it is possible to spend 25 percent of income on leisure activities. Luxury for wealthy is a way of life.

The Ultra-rich: Not a week goes by that the daily newspapers or television do not inform world of the pay of rich and famous. Going into the detail of lifestyle of ultra-rich people is beyond the purview of this post.