o Policies having to do with wages salaries and earnings affect their overall income thus standard of Compensation Pay Structure Employer s view o Pay is critical to achieve strategic goals o Motivational o Significant to organizational costs Employee s View living o Both level of pay and fairness compared with others pay is important Developing Pay levels Base Pay o Pay structure pay levels and how much they are paid o Pay Level average pay including wages salaries and bonuses o Job Structure relative pay of Jobs o Pay Policies attached to jobs not individuals Pay Structure concepts and consequences Pay Structure Decision Area Pay Level Admin Tools Market Pay surveys Focus of employee pay comparisons External Equity Consequences of Equity of Perceptions External employee movement labor costs employee attitudes Internal employee movement cooperation Job Structure Job Evaluation Internal Equity Developing pay levels o 2 competitive market challenges in pay decisions Product market competition challenge to sell goods and services at a quantity and price that will bring ROI Labor market competition amount an organization must pay to compete against other Employees as Resource organizations that hire similar employees o A philosophy that considers employees to be an invest that will yield valuable returns o Controlling costs through non competitive pay can result in low employee productivity quality o 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 o Discretionary and is based on a broad range o The organization has to decided whether to pay at below or above the market average o Efficiency wage theory wages influence worker productivity Market Pay Surveys o Benchmarking procedure that an organization compares its own practices against the competition o 3 issues Which employers should be included Which jobs should be included If multiple surveys are used how are all the rates of pay weighted and combined Product Market comparisons will be more important when o Labor costs represent a large share of total costs o Product demand is elastic o The supply of labor is inelastic o Employee skills are specific to the product market Labor Market Comparisons will be more important when o Attracting and retaining employees is difficult o The costs of recruiting are high Rate Ranges Key and Non key Jobs o Rate Range different employees in the same job that may have different pay rates o Key jobs Benchmark jobs that have relatively stable content and are common to many organizations so that market pay survey data can be obtained o Non key Jobs unique to organizations and cannot be directly valued or compared through the use of market surveys Developing a Job Structure o Job Structure Relative worth of various jobs in the organization based on internal comparisons o Job Evaluation is administrative procedure used to measure internal job worth Evaluation process is composed of compensable factor which are the characteristics of jobs that an organizations values and chooses to pay for Job evaluator often applies a weighting scheme to account for the differing importance of compensable factors to the organization o 3 Pay setting Approaches Market survey approach the greatest emphasis is on external comparisons 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 Grouping jobs of similar worth or content together for pay administration purposes Range Spread the distance between minimum and maximum amounts in a pay grade Conflicts o Internal data would drive up labor costs and create product market problems o If external market data are emphasized and a job is paid lower internally comparisons that employees make internally would result in dissatisfaction o An organization should consider its strategy what jobs and or functions will be critical for success and market competitive pressures Monitoring Compensation Costs o Compa ratio ratio between actual pay and the midpoint of the pay range Compa ratio 89 Globalization Geographic Region and Pay Structure o Pay structures differ across countries in level and relative worth of jobs o Expatriate pay and benefits have linked more closely to the home country this link now appears to depend more on the assignment s nature and length Importance of Process o Participation Pay level decisions are only made by top management Should involve those who will manage and be affected by the process Includes recommending designing and communication a pay program o Communication Can impact employees 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 o 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 yesterdays may not be helpful today and tomorrow System encourages promotion seeking behavior but discourages lateral movement 3 responses Delayer reducing number of job levels within an organization to provide more flexibility in job assignments and in assigning merit increases Moving away from linking pay to jobs toward building structures on skill knowledge and competency Skill based pay paying individuals for skills they are capable of using rather than for the job they are performing Executive pay o Accounts for a small proportion of labor costs o Have disproptionate ability to influence organizational performance o 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 o Criticisms Executives are paid a lot especially in US Ratio of executive pay to average worker pay creates a trust gap workers do not trust executives intentions and resent their pay Some contracts tie pay to position regardless of performance Lack of transparency in pay for executives Equal employment Opportunity by business necessity o EEO prohibits sex and race based differences in employment outcomes such as pay