Pay Structure Decisions Chapter 11 Pay Structure Decisions

Introduction What is the importance of pay from the employer point of view? What is the importance of pay from the employee point of view?

Introduction Pay Structure The relative pay of different jobs (job structure) and how much they are paid (pay level). Pay Level The average pay in organizations, including wages, salaries, and bonuses. Job Structure The relative pay of jobs in organizations (i.e., the range of pay often expressed by salary grades).

Equity Theory and Fairness Pay Structure Decision Area Administrative Tool Focus of Employee Pay Comparison Consequences of Equity Perceptions Pay Level Market pay surveys External equity External employee movement, labor costs, employee attitudes Job Structure Job evaluation Internal equity Internal employee movement, cooperation, employee attitudes

Product Market Competition Labor Market Competition Developing Pay Levels Market Pressure Product Market Competition The challenge to sell goods and services at a quantity and price that will bring a return on investment. Labor Market Competition The amount an organization must pay to compete against other organizations that hire similar employees.

Developing Pay Levels Employees as A Resource Deciding What to Pay? Employees are an investment Deciding What to Pay? Pay Leader As Others (Going Rate) Pay Follower Efficiency Wage Theory A theory stating that wages influence worker productivity.

Benchmarking (Salary Survey) Developing Pay Levels Market Pay Surveys Benchmarking (Salary Survey) Comparing an organization’s practices against those of the competition Rate Ranges Different employees in the same job that may have different pay rates. Key Jobs Benchmark jobs, used in pay surveys, that have relatively stable content and are common to many organizations Non-key Jobs Jobs that are unique to organizations and cannot be directly valued or compared through the use of market surveys

Developing A Job Structure The Point – Factor System Developing Pay Levels Developing A Job Structure The relative worth of various jobs in the organization, based on internal comparison Job Evaluation An administrative procedure that measures a job's worth to the organization Compensable Factors the characteristics of jobs that an organization values and chooses to pay for The Point – Factor System Job evaluators often apply a weighting scheme to account for the differing importance of the compensable factors to the organization

Developing A Pay Structure Developing Pay Levels Developing A Pay Structure Market Survey Data Emphasize on external comparisons as it bases pay on market surveys that cover as many key jobs as possible Pay Policy Line A mathematical expression that describes the relationship between a job’s pay and its job evaluation points Pay Grades Jobs of similar worth or content grouped together for pay administration purposes Range Spread The distance between the minimum and maximum amounts in a pay grade

Developing Pay Levels Conflicts Between Market Pay Surveys and Job Evaluation What Does it Mean? Differences in values obtained by market pay survey and job evaluation What are the Scenarios? Emphasizing the internal data (job evaluation) or emphasizing the external data (market pay survey) What are the Consequences? If jobs are paid higher (Increase in labor costs and creates product-market problems) If jobs are paid Lower (Increase in employees dissatisfaction)

Developing Pay Levels Monitoring Compensation Costs Compa-Ratio An index of the correspondence between actual and intended pay Grade Compa-Ratio = Actual average pay for grade / Pay midpoint for grade Globalization, Geographic Region, and Pay Structure Why pay structures might differ substantially across countries? Why expatriate pay and benefits continue to be linked more closely to the home country?

The Importance of Process: Participation and Communication

Problems with Job Based Pay Structures Current Challenges Problems with Job Based Pay Structures Encourage bureaucracy Reinforce top-down decision Can become a barrier to change May not reward desired behaviors Encourage promotion-seeking behavior

Responses to Problems with Job-Based Pay Structures Current Challenges Responses to Problems with Job-Based Pay Structures Delaying and Banding Reducing the number of job levels within an organization Skill-Based Pay Paying individuals for the skills they are capable of using

Can the US Labor Force Compete? Current Challenges Can the US Labor Force Compete? Instability of country differences in labor cost Skill level Productivity Non labor considerations Executive Pay