Human resource management gaining a competitive advantage 2014 chapter 11

Developing Pay Levels Pay structure - relative pay of different jobs job structure & how much they are paid pay level..  Unless higher labor costs are offset by higher worker product

Human Resource Management:

Gaining a Competitive Advantage

Chapter 11 Pay Structure Decisions

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

Equity Theory & Fairness

Pay Structure Concepts & Consequences

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.

2 Components of Labor Costs

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.

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.

worker productivity.

Market Pay Surveys

organization compares its own practices

against the competition.

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?

Product Market VS Labor Market

Comparisons

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.

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

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.

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

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

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.

Current Challenges

 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

Responses Job-Based Pay

Structures

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:

Executive Pay

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

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

EEO- Employment Compensation

 among executives women

appear to have lower pay than

men

 women comprised 47% of all

employees in 2011

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%.

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 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