1. 11-1 McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. fundamentals of Human Resource Management 4 th edition by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright CHAPTER 11 Establishing a Pay Structure

2. 11-2 Figure 11.1: Issues in Developing a Pay Structure

3. 11-3 Legal Requirements for Pay: Equal Employment Opportunity Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to such business-related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work.

4. 11-4 Economic Influences on Pay Product Markets The organization’s product market includes organizations that offer competing goods and services. Organizations compete on quality, service, and price. The cost of labor is a significant part of an organization’s costs. Labor Markets Organizations must compete to obtain human resources in labor markets. Competing for labor establishes the minimum an organization must pay to hire an employee for a particular job.

5. 11-5 Gathering Information About Market Pay Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors Pay surveys Trade and industry groups Professional groups Bureau of Labor Statistics (BLS) Society for Human Resource Management (SHRM) WorldatWork

6. 11-6 Employee Judgments About Pay Fairness Employees compare their pay and contributions against three yardsticks: 1.What they think employees in other organizations earn for doing the same job. 2.What they think other employees holding different jobs within the organization earn for doing work at the same or different levels. 3.What they think other employees in the organization earn for doing the same job as theirs.

7. 11-7 Job Structure: Relative Value of Jobs Job Evaluation An administrative procedure for measuring the relative internal worth of the organization’s jobs. Compensable Factors The characteristics of a job that the organization values and chooses to pay for. – Experience – Education – Complexity – Working conditions – Responsibility

8. 11-8 Pay Ranges Pay ranges – a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade. Red-circle rate – pay at a rate that falls above the pay range for the job. Green-circle rate – pay at a rate that falls below the pay range for the job.

9. 11-9 Pay Differentials Pay differential – adjustment to a pay rate to reflect differences in working conditions or labor markets. Many businesses in the United States provide pay differentials based on geographic location. The most common approach is to move an employee higher in the pay structure to compensate for higher living costs.

10. 11-10 Alternatives to Job-Based Pay Delayering Reducing the number of levels in the organization’s job structure. More assignments are combined into a single layer. These broader groupings are called broad bands. More emphasis on acquiring experience, rather than promotions. Skill-Based Pay Systems Pay structures that set pay according to the employees’ levels of skill or knowledge and what they are capable of doing. This is appropriate in organizations where changing technology requires employees to continually widen and deepen their knowledge.

11. 11-11 Pay Structure and Actual Pay Pay structure represents the organization’s policy. However, what the organization actually does may be different. The HR department should compare actual pay to the pay structure, making sure that policies and practices match. Compa-ratio is the common way to do this.

12. 11-12 Figure 11.7: Finding a Compa-Ratio Compa-Ratio (CR) – the ratio of average pay to the midpoint of the pay range. If the average equals the midpoint, CR is 1. If CR is greater than 1, the average pay is above the midpoint. IF CR is less than 1, the average pay is below the midpoint.

13. 11-13 Current Issues in Pay Pay During Military Duty – How should companies handle employees who are called for active duty in the military for extended time periods? – The Uniformed Services Employment and Reemployment Rights Act (USERRA) Pay for Executives – Based on equity theory, how does executive compensation affect employees?

14. 11-14 Summary Organizations make decisions to define a job structure, or relative pay for different jobs within the organization. Organizations also must establish pay levels, or the average paid for the different jobs. These decisions are based on the organization’s goals, market data, legal requirements, and principles of fairness. Together, job structure and pay level establish a pay structure policy.