Lecture Human resource management: Gaining a competitive advantage (9/e) – Chapter 11: Pay structure decisions

Chapter 11 - Pay structure decisions. After reading this chapter, you should be able to: List the main decision areas and concepts in employee compensation management, describe the major administrative tools used to manage employee compensation, explain the importance of competitive labor market and product market forces in compensation decisions,...

Chapter 11 Pay Structure Decisions

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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.

2 components of labor costs = average cost per

employee plus staffing level

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.

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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 – emphasizes 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

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Can the U.S Labor Force Compete?

4 Deciding Factors Where to Locate Production

EEO - Trends

 Female-to-male median earnings was 0.81, ratio

of Black-to-White earnings was 78 and Hispanic-Latino-to-White earnings was 72

 Women increased to 47% of all employees in

2013

 Asian Americans earn 16% more than Whites

 Between 1960 and 2013, whites decreased from

90% to 81% of all employees

Comparable worth (or pay equity) is a public policy

that advocates remedies for any undervaluation

of women's jobs

Wage Laws

 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

FLSA: Overtime

The FLSA requires that employees be paid at a rate of

one and a half times their hourly rate for each hour of

overtime worked beyond 40 hours in a week The hourly rate includes base wage plus other components such as bonuses and piece-rate payments

•Overtime pay is required for any hours beyond 40 in a

week that an employer “suffers or permits” the employee

to perform, regardless of whether the work is done at the workplace or whether the employer explicitly asked or expected the employee to do it

 Equity theory - social comparisons influence how

employees evaluate their pay

 Employees make external comparisons between their pay and pay they believe is received by employees in other 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) and play an

important role in the controversy over executive pay

Summary, continued

 Pay benchmarking surveys and job evaluation are

tools used in managing pay level and job structure

components of the pay structure

 Pay surveys permit organizations to benchmark their

labor costs

 Globalization is increasing the need to be

competitive in labor costs and productivity

 Pay structure is moving to fewer pay levels to

reduce labor costs and bureaucracy and shifting from paying employees for narrow jobs to giving broader

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