1. Pay Structure Decisions
Chapter 11
Pay Structure Decisions

2. 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?

3. 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).

4. 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

5. 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.

6. 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.

7. 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

8. 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

9. 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

10. 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)

11. 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?

12. The Importance of Process: Participation and Communication

13. 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

14. 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

15. 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