Organizational change is seldom brought by change in pay. Although not much research is available on this issue, many researchers believe that intrinsic sources of motivation arising from the design of work are much more important than extrinsic sources in determining the level of employee motivation. The vast authorities of majority of authorities on motivation conclude that motivation from extrinsic sources is complementary and additive to motivation from intrinsic sources. Both intrinsic and extrinsic motivation is necessary. Low extrinsic motivation reduces total motivation even if intrinsic motivation is high and vice versa.
Pay systems should be a lag system on strategic grounds. Compensation must be aligned with other organizational systems that must be designed first in order for it to be effective. Organizational structure and culture follows from the business strategy and business strategy gives direction to the organization. Without putting this direction into lead and designing compensation system changes that meet the organization’s needs not always possible. To design effective compensation system, understanding of organizational needs that analysis of strategy, structure, and culture provides is necessary.
Compensation should not be lead system in organization change because it is ineffective at changing employee behaviour. Compensation system can indeed be powerful but it should be the lag system. The alignment perspective on compensation design requires that business direction be set first. Compensation cannot lag business strategy, structure, and culture, and probably should not lag the adoption of other human resource systems either. Compensation is highly an emotional topic. It makes a poor candidate for leading organizational change, because it is more likely than other kinds of changes to generate employee resistance and thus to cause management to abandon the entire change effort rather than developing necessary supporting systems.
