©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Equity Theory OUTCOME INPUTS OUTCOME INPUTS ? the same more or less A person evaluates fairness by comparing their ratio with others. Pay, benefits, opportunities, etc. effort, ability, experience etc.

1Pay Level - Same job in Different organizations 2Pay Structure - Different jobs in Same organization 3Individual Pay Differences - Different people in Same job 1Pay Level - Same job in Different organizations 2Pay Structure - Different jobs in Same organization 3Individual Pay Differences - Different people in Same job 3 Employee VIEWS of the PAY DECISION 3 Employee VIEWS of the PAY DECISION ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Pay Structure Concepts and Consequences ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Administrative Tool Focus of Comparison Consequence Pay LevelJob Structure Market surveysJob evaluation ExternalInternal - external moves: attraction / retention of employees - labor costs - employee attitudes - internal moves: promotion, transfer - cooperation among employees - employee attitudes

1Identify key labor- and product-market competition 2Identify key jobs vs. non-key jobs 3Weight and combine pay rates appropriately 4Track appropriate ratios over time –revenues per employee –revenues per labor cost –work force quality (e.g. education levels) 1Identify key labor- and product-market competition 2Identify key jobs vs. non-key jobs 3Weight and combine pay rates appropriately 4Track appropriate ratios over time –revenues per employee –revenues per labor cost –work force quality (e.g. education levels) ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Market Pay Surveys - Benchmarking Factors to consider

Exhibit 2: SCHS Job Evaluation Manual Job Factor A: Job Complexity - This factor measures the judgement, creativity and resourcefulness required to perform work assigned to a position and the discretion needed to carry out assigned tasks. It is composed of problem-solving ability and latitude dimensions. Dimension 1: Problem-Solving: The degree to which a position requires the use of judgement, decision-making,research and creativity. Degree 1: Position applies physical dexterity in work assignments, that are quite repetitive. Little or no discretion or judgement needed. Degree 2: Position applies judgement to follow work procedures, interpret policies and/or analyze situations to carry out assignments. Assignments are more complex but repetitive and interrelated. Degree 3: Position applies judgement and/or research analysis to determine approaches and recommend actions where no precedence exists. Assignments are varied and usually involves a single discipline. Degree 4: Position applies judgement to create, formulate and evaluate operating policies, objectives and systems in analyzing and carrying out broad work activities. Points Dimension 2: Latitude: The degree of supervision or guidance received by a position or the amount of freedom to perform assignments. Degree 1: Position receives regular supervision and direction. No latitude to alter work methods. Degree 2: Position receives regular supervision and direction, but has considerable discretion to select methods. Degree 3: Position receives broad direction and has complete latitude to fulfill work goals and objectives. Degree 4: Position receives top management direction and has complete latitude to fulfill and/or develop strategic goals and objectives for a major segment of SCHS. Points

Exhibit 2: SCHS Job Evaluation Manual Job Factor D: Work Requirements - This factor measures the minimum work qualifications needed to satisfactorily perform the position’s duties. It is composed of knowledge and experience dimensions. Dimension 7: Knowledge: The minimum level of knowledge gained through formal education or similar work experience. Degree 1: Position requires basic knowledge of reading and writing to perform assigned tasks. Degree 2: Position requires technical and special knowledge to perform assigned tasks. Degree 3: Position requires advanced knowledge of a technical skill or discipline to perform assigned tasks. Degree 4: Position requires expert knowledge of a technical skill or discipline to perform assigned tasks. Dimension 8: Experience: The minimum amount of work experience, beyond the level of knowledge, required to perform duties and responsibilities of the position. Degree 1: Position requires less than six months prior work experience. Degree 2: Position requires a minimum of six months to one year of prior related work experience. Degree 3: Position requires a minimum of one to two years of prior related work experience. Degree 4: Position requires a minimum of over two years prior work experience. Points Points

©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Example of a Three-Factor Job Evaluation System Job Title Experience Education Complexity Points Total Compensable Factors Computer operator Computer programmer Systems analyst

Market survey data –external comparisons Pay policy line –combines internal & external Pay grade Market survey data –external comparisons Pay policy line –combines internal & external Pay grade ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Approaches to Developing a Pay Structure

PAY Job Evaluation Points Developing a Pay Policy Line ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N monthly salary ($000) Line of Best Fit : using Market-Survey data in Table 15.5

PAY Job Evaluation Points ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N monthly salary ($000) Job Evaluation Points = 315 Predicted Salary = $7,128 Predicted Salary = $6,486 Developing a Pay Policy Line see figure 15.1

PAY Job Evaluation Points PAY GRADE STRUCTURE ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N monthly salary (000)

Participation –Use task forces for suggestions Communication –Employees need to understand system –Need to keep managers aware of changes –Managers need to explain system changes Participation –Use task forces for suggestions Communication –Employees need to understand system –Need to keep managers aware of changes –Managers need to explain system changes ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Process Issues

Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Current Challenges

Delayering and Banding Skill (knowledge) - based pay –increases flexibility –firm needs to use available skills Delayering and Banding Skill (knowledge) - based pay –increases flexibility –firm needs to use available skills ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N New Approaches

Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities –market proximity –response time Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities –market proximity –response time ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Can the U.S. Labor Force Compete?

Comparative Productivity and Unit Labor Costs: United States, Germany, and Japan Comparative Productivity and Unit Labor Costs: United States, Germany, and Japan Legend: U.S. Germany Japan Productivity (value added per labor hour) Unit Labor Costs $100 $ Source: B. VanHark, “Manufacturing Prices, Productivity, and Labor Costs in Five Economies,” Monthly Labor Review (July 1995):

Chief Executive Officer Pay in Selected Countries Chief Executive Officer Pay in Selected Countries Multiple of CEO to Manufacturing Employee Total Remuneration Source: Used with permission of Towers Perrin, “1992,1994,1995 Worldwide Remuneration” (New York: Towers Perrin, Copyright 1994, 1995, 1992) Germany 25 Japan United States France