HRM gaining a competitive advantage noe ch011

Developing Pay Levels Pay structure - relative pay of different jobs job structure and how much they are paid pay level.. Equity Theory and Fairness Pay Structure Concepts and Consequen

Human Resource Management:

Gaining a Competitive Advantage

Chapter 11 Pay Structure Decisions

 Explain the importance of competitive

labor-market and product-market forces in compensation

decisions

 Discuss the significance of process issues such as

communication in compensation management

Learning Objectives

 Describe new developments in pay structure designs

 Explain where U S stands on pay issues from an

international perspective

 Explain reasons for executive pay controversy

 Describe the regulatory framework for employee

compensation

• Pay impacts employee

attitudes and behaviors.

• Both level of pay and fairness compared with others’ pay are important.

Developing Pay Levels

 Pay structure - relative pay of different jobs

(job structure) and how much they are paid (pay level)

 Pay level - average pay, including wages, salaries and

bonuses

 Job structure - relative pay of jobs (the range of pay often

expressed by salary grades)

 Pay policiesare attached to jobs, not individuals.

Equity Theory and Fairness

Pay Structure Concepts and Consequences

External equity

Internal equity

Consequences of Equity Perceptions

External employee movement, labor costs, employee attitudes

Internal employee

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 thatwill bring a return on investment.

2 Labor-market competition –amount an organization

must pay to compete against other organizations that hire similar employees.

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 one of the most important

HR tools for encouraging desired employee behaviors and

discouraging undesired behaviors

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.

Market Pay Surveys

 Benchmarking is a procedure by which an organization

compares its own practices against

the competition

 3 issues to determine 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 the rates of

pay weighted and combined?

Product MarketV Labor Market

be more important when:

• Attracting and retaining employees

is difficult.

• The costs of recruiting are high.

Rate Ranges, Key and Non-key Jobs

 Rate ranges- different employees in the same job that may

have different pay rates

 Key jobs are 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

Developing a Job Structure

 Job structure- relative worth of various jobs in the

organization, based on internal comparisons

 Job evaluation is an administrative procedure used to

measure internal job worth

 The evaluation process is composed of

compensable factors, which are the characteristics

of jobs that an organization values and chooses to

pay for

 Job evaluators often apply a weighting scheme to

account for the differing importance of compensable

factors to the organization

Developing a Pay Structure

 3 Pay-setting Approaches:

1 Market Survey Approach - The greatest emphasis is

on external comparisons It bases pay on market surveys that cover as many key jobs as possible

2 Pay Policy Line - A 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 is the distance between minimum and

Conflicts –

Market Pay Surveys & Job Evaluation

 Internal data would drive 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

Monitoring Compensation Costs

One way to examine the difference between policy

and practice is to compute a compa-ratio,

which is an index of the correspondence between

actual and intended pay

Globalization, Geographic Region

and Pay Structure

 Pay structuresdiffer across countries

in level and relative worth of jobs

 Although expatriate pay and benefits

have been linked more closely to the home

country, this link now appears to depend

more on the assignment’s nature and

length

The Importance of Process:

Participation and Communication

Participation

 Participation should

involve those who will

manage and be affected

perceptions of equity

 Managers must be prepared to explain why the pay structure is

designed the way it is and to judge whether changes should be made

to the structure

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.

Current Challenges

 3 Responses to Problems with Job-based Pay Structures:

1 delayer – reducing number of job levels within an

organization to provide more flexibility in job assignments and in assigning merit increases

2 moving away from linking pay to jobs toward building

structures on skill, knowledge and competency.

3 Skill-based pay - paying individuals for skills they are

capable of using rather than for the job they are performing.

Can the U.S Labor Force Compete?

 U S labor cost are high compared to newly industrialized and

productivity

 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

CEO Remuneration in U.S Dollars

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

Equal Employment Opportunity

 (EEO) regulations prohibitssex and race-based differences

in employment outcomes such as pay, unless justified by

business necessity

 Organizations must also deal with changing labor market

and demographic realities

 2 Trends Related to EEO:

1 increasing participation of women and nonwhites in

the labor force.

2 proportion of wages in 2006 that women earn

compared to men was 81 % and black to white earnings was 80 %

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.

Wage Laws

 The Fair Labor Standards Act (FLSA) of 1938 established a

minimum wageand overtime pay rate

 Minimum wage is $7.25 an hour It is the lowest

amount that employers are legally allowed to pay.

 Executive, professional, administrative and outside

sales are exempt from FLSA coverage.

 Exempt – those employees not covered by the

FLSAand 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

organizations which may have consequences for employee

attitudes and retention

 Employees make internal comparisons between what they

receive and what they perceive others within the organization

are paid These comparisons may have consequences for

internal movement, cooperation, and attitudes (like organization commitment)

 Globalization is increasing the need to be competitive in labor

costs and productivity

 Pay structures is moving to fewer pay levels to reduce labor

costs and bureaucracy and shifting from paying employees for

narrow jobs to giving broader responsibilities and paying them

to learn necessary skills