Every organization has a specific hierarchy according to their need and preference. It may be a multi-level hierarchy, or everyone reports to the manager directly. Regardless of the organization system, one person is always senior to the other. Usually, the people in the senior position get better benefits and pay than their junior counterparts. The seniority based pay system is quite prevalent in offices. It is popularly known that companies which value their old employees are more successful than others.
What is a Seniority Based Pay System?
Seniority-based pay system means offering higher pay to senior employees.
Most organizations follow this method as seniority usually means more experience and expertise. Some companies focus more on the expertise and not on how long the employee has worked with them only. Some businesses may also consider the performance of the employee during the time, but mostly it relies on tenure. In a seniority based pay system people with an extended tenure with the company get paid more.
Advantages of Seniority Based System
The seniority-based system enables the employees to give their best to reach higher positions in the company for more benefits. When people understand that the company recognizes their tenure, they are more loyal and do not change their jobs often. They choose to work better at the company instead of looking for new jobs. They work towards the combined benefit of the organization instead of thinking of their personal benefits.
Better Working Environment
Companies that do not opt for seniority-based pay systems usually push their employees to work beyond their limits. Everyone in the organization believes they have to be better than the other person to get paid better. On the other hand, employees in a seniority-based pay system do not focus on their personal growth only. They understand that their hard work will bring them into the limelight, and they will get the advantage of being a senior in the company.
Low Turnover Rate
The turnover rates are quite low in companies that follow seniority-based systems. People prefer staying in one company to increase their tenure and chances of promotion over time. It reduces turnover costs and saves your organization from bearing added recruitment costs. You can encourage the workers in such a system to stay loyal to your company to attain more benefits.
Seniority Pay System vs Performance Pay System
While the seniority-based pay system focuses on the tenure of an employee with the company, the performance-based system considers the performance of the employees. The performance-based pay system usually sounds better to new businesses. However, sometimes it’s not the right decision for your organization. It depends on the kind of business and your employees and how well it works out. Sometimes the employees would put in their best effort to deliver exceptional results. Other times, they would get tired of going out of the way. Thus, a performance-based pay system often increases turnover.
The Bottom Line
Seniority-based pay systems are quite common, and many businesses follow this approach. Managers and higher management get paid better than new employees regardless of their expertise. The seniority-based pay system focuses on the employee’s position in the company. It promotes harmony within the company as no one fears the other performing better. It also improves retention rate and loyalty to the organization.
What are the Advantages of Seniority?
Seniority-based pay systems encourage the employees to direct their loyalties toward the organization to boost their chances of promotion. Many companies give incentives after a certain period and added benefits at the managerial or senior levels.
Why is Seniority Important in Scheduling Services?
Seniority in the scheduling system helps give responsibilities based on their experience in the craft. It also offers benefits to the employees allowing them to change their shifts when needed or opt for another assignment of their choice. Senior employees in the scheduling services also get rewarded for their long-term services.
What are the Benefits of a Pay for Performance Based System Versus a Seniority Based Pay System?
Performance-based pay systems reward their employees based on their performance instead of their seniority level. It instills the drive to do better and creates a competitive atmosphere in the company. However, sometimes the competition may become unhealthy. Thus, it should be properly looked over.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.