1. Human Resource Management: Gaining a Competitive Advantage Chapter 11 Pay Structure Decisions Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. Developing Pay Levels  Pay structure - relative pay of different jobs (job structure) & how much they are paid (pay level).  Pay level - average pay, including wages, salaries & bonuses.  Job structure - relative pay of jobs (range of pay often expressed by salary grades).  Pay policies are attached to jobs, not individuals. 11-2

3. Equity Theory & Fairness Pay Structure Concepts & Consequences 11-3

4. Developing Pay Levels-Market Pressures 2 Competitive Market Challenges in Pay Decisions: 1. Product-market competition-challenge to sell goods and services at a quantity and price that will bring a return on investment. 2. Labor-market competition-amount an organization must pay to compete against other organizations that hire similar employees. Unless higher labor costs are offset by higher worker productivity or desirable product features that allow a higher product price, it will be difficult to sustain relatively high costs in a competitive product market. 11-4

5. 2 Components of Labor Costs Average cost per employee Staffing level Labor Costs 11-5

6. Employees as a Resource  A philosophy that considers employees to be an investment that will yield valuable returns.  Controlling costs through noncompetitive pay can result in low employee productivity and quality.  Pay policies and programs are important HR tools for encouraging desired employee behaviors and discouraging undesired behaviors. 11-6

7. Deciding What to Pay  Deciding pay levels is discretionary and is based on a broad range.  The organization has to decide whether to pay at, below, or above the market average.  Efficiency wage theory- wages influence worker productivity. 11-7

8. Market Pay Surveys  Benchmarking- procedure by which an organization compares its own practices against the competition.  3 issues to consider before using pay surveys: 1. Which employers should be included in the survey? 2.Which jobs are included in the survey? 3.If multiple surveys are used, how are all rates of pay weighted and combined? 11-8

9. Product Market VS. Labor Market Comparisons 11-9

10. Rate Ranges, Key & Non-key Jobs  Rate ranges- different employees in same job that may have different pay rates.  Key jobs- benchmark jobs that have relatively stable content and are common to many organizations so that market-pay survey data can be obtained.  Non-key jobs are unique to organizations and cannot be directly valued or compared through the use of market surveys. 11-10

11. Developing a Job Structure  Job structure- relative worth of various jobs in based on internal comparisons.  Job evaluation- administrative procedure used to measure internal job worth.  The evaluation process is composed of compensable factors, which are characteristics of jobs that an organization values and chooses to pay.  Job evaluators often apply a weighting scheme to account for differing importance of compensable factors to the organization. 11-11

12. Developing a Pay Structure  3 Pay-setting Approaches: 1. Market Survey Approach - greatest emphasis is on external comparisons. It bases pay on market surveys that cover as many key jobs as possible. 2.Pay Policy Line – mathematical expression that describes the relationship between a job’s pay and its job evaluation points. 3.Pay Grades- Grouping jobs of similar worth or content together for pay administration purposes.  Range spread -distance between minimum & maximum amounts in a pay grade. 11-12

13. Conflicts – Market Pay Surveys & Job Evaluation  Internal data drives up labor costs and create product- market problems.  If external market data are emphasized and a job is paid lower internally, comparisons that employees make internally would result in dissatisfaction.  An organization should consider its strategy, what jobs and/or functions will be critical for success and market- competitive pressures. 11-13

14. Monitoring Compensation Costs To examine the difference between policy and practice, compute a compa-ratio, which is an index of the correspondence between actual and intended pay. 11-14

15. Globalization, Geographic Region & Pay Structure  Pay structures differ across countries in level & relative worth of jobs.  Expatriate pay and benefits depend on assignment’s nature and length. 11-15

16. Current Challenges  Job-based pay structures can create problems :  reinforces top-down decision making as well as status differentials.  bureaucracy, time and cost required to generate and update job descriptions can become a barrier to change.  job-based structure may not reward desired behaviors, where the knowledge, skills, and abilities needed yesterday may not be helpful today and tomorrow.  system encourages promotion-seeking behavior, but discourages lateral movement. 11-16

17. Responses Job-Based Pay Structures DelayerSkill Based Competency Based 11-17

18. Can the U.S. Labor Force Compete?  U.S. labor cost are high compared to newly industrialized and developing countries.  4 Factors Shifting Production to Other Countries: Non-labor considerations Productivity Unit Labor Costs & G.D.P. Skill levels quality & productivity 11-18

19. Executive Pay  Executive pay has been given widespread attention in the press.  Executive pay accounts for a small proportion of labor costs.  Executives have a disproportionate ability to influence organizational performance.  Executives help set culture, so if their pay seems unrelated to organizational performance, employees may not understand why their pay should be at risk depending on the organization's performance. 11-19

20. CEO Remuneration in U.S. Dollars 11-20

21. Reasons for Executive Pay Criticisms  Some executives are very highly paid.  U.S. executives - best paid in the world.  Ratio of executive pay to average worker pay creates a "trust gap" - workers do not trust executives' intentions and resent their pay. 11-21

22. EEO- Employment Compensation  among executives women appear to have lower pay than men  women comprised 47% of all employees in 2011 11-22

23. Equal Employment Opportunity  (EEO) regulations prohibits sex & race-based differences in employment outcomes such as pay, unless justified by business necessity.  2 Trends Related to EEO: 1. increasing participation of women and nonwhites in the labor force. 2. proportion of wages in 2010: women compared to men was 81%. black to white was 80%. Hispanic-Latino to white earning was 70%. 11-23

24. Comparable Worth  Comparable worth (or pay equity) is a public policy that advocates remedies for any undervaluation of women's jobs.  Based on the idea that individuals should obtain equal pay, not just for jobs of equal content, but for jobs of equal value or worth.  Courts have consistently ruled that using the going market rates of pay is acceptable defense in comparable worth litigation suits. 11-24

25. Wage Laws  The Fair Labor Standards Act (FLSA) of 1938 established a minimum wage and overtime pay rate.  Minimum wage is $7.25 an hour. It is the lowest amount that employers are legally allowed to pay.  Exempt –those employees (executive, professional, administrative and outside sales) not covered by the FLSA and not eligible for overtime pay.  Davis-Bacon Act and Walsh-Healy Public Contracts Act require federal contractors to pay employees no less than area’s prevailing wages. 11-25