Capitulo 9 - Compensation Flashcards
What is pay?
Pays is a powerful tool for meeting the organization’s goals and a major cost. It has a large impact on employee attitudes and behaviors.
It influences the kinds of people who are attracted to (or remain with) the organization.
Employees attach great importance to pay decisions when they evaluate their relationships with their employer.
What are the decisions about pay?
Job structure - Relative pay for different jobs within the organization.
Pay level - Average amount the organization pays for a particular job.
Pay structure - Pay policy resulting from job structure and pay-level decisions.
What are the issues in developing a pay structure?
Legal requirements:
- Equal pay for equal work
- Minimum wage
- Overtime pay
- Restrictions on child labor
Market forces:
- Product markets
- Labor markets
Organisation’s goals:
- High-quality workforce
- Cost control
- Equity and fairness
- Legal compliance
This leaves to:
Pay Level Decision
Job Structure Decision
Pay Structure Decisions
- Pay rates
- Pay grades
- Pay ranges
- Pay differentials
Pay Structure: Legal Requirements for Pay
What is equal employment opportunity?
Two employees who do the same job cannot be paid different
wages because of gender, race, or age.
Pay Structure: Legal Requirements for Pay
What are minimum wages?
The lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour. In Germany, wages often result of collective bargaining processes.
Pay Structure: Legal Requirements for Pay
What is pay for overtime?
Overtime pay is required, whether or not the employer specifically asked or expected the employee to work more than (usually) 40 hours.
Exempt employees: Managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay.
Nonexempt employees: Employees covered by FLSA (Fair Labor Standards Act; U.S) requirements for overtime pay.
Pay Structure: Market Forces
What are 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.
Pay Structure: Market Forces
What are 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.
Pay Structure: Pay Level Decision
What is pay level?
The average amount the organization pays for a particular job.
Pay at:
- The rate set by the market
- A rate above the market
- A rate below the market
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
Pay Structure: Job Structure Decision
What is job structure?
The relative pay for different jobs within the organization.
Pay Structure: Job Structure Decision
What is job evaluation?
An administrative procedure for measuring the relative internal worth of the organization’s jobs.
Pay Structure: Job Structure Decision
What are compensable factors?
The characteristics of a job that the organization values and chooses to pay for, e.g.:
- Experience
- Education
- Complexity
- Working conditions
- Responsibility
Pay Structure: Job Structure Decision
What are key jobs?
Jobs that have relatively stable content and are common among many organizations.
Pay Structure: Job Structure Decision
How can organisation’s make the process of creating the job structure and pay structure more practical?
By defining key jobs.
Research for creating the pay structure is limited to the key jobs that play a significant role in the organization.
Pay Structure: Pay Structure Decision
How is the Pay Structure Decision
Job Evaluation
Job Structure
Define Key Jobs
Pay Survey
Pay Policy Line
Pay Rates
Pay Grades
Pay Ranges
Pay Structure
Pay Structure: Pay Structure Decision
What are pay rates?
- Organization obtains pay survey data for its key jobs.
- Pay policy line is established.
- Pay rates for non-key jobs are then determined.
Pay Structure: Pay Structure Decision
What is pay policy line?
A graphed line showing the mathematical relationship between job evaluation points and pay rate.
Pay Structure: Pay Structure Decision
What are pay grades?
Sets of jobs having similar worth or content, grouped together to establish rates of pay.
Pay Structure: Pay Structure Decision
What are pay ranges?
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.
Pay Structure and Actual Pay
What should the HR department do to make sure that policies and practises match?
The HR department should compare actual pay to the pay structure.
Compa-ratio is the common way to do this.
Pay Structure and Actual Pay
What is compa-ratio?
The ratio 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.
What are the alternatives to job-based pay?
Delayering, skill-based pay systems.
alternatives to job-based pay
What is 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.
alternatives to job-based pay
What is 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.
Employee Judgments About Pay Fairness
What are the three yardsticks that employees compare their pay and contributions against?
- What they think employees in other organizations earn for doing the same job.
- What they think other employees holding different jobs within the organization earn for doing work at the same or different levels.
- What they think other employees in the organization earn for doing the same job as theirs.
Pay Equity
What is pay equity?
If employees conclude they are under-rewarded, they are likely to make up the difference in one of three ways:
1. They might put forth less effort (reducing their inputs).
2. They might find a way to increase their outcomes (e.g. stealing).
3. They might withdraw (by leaving the organization or refusing to cooperate).
Employees’ beliefs about fairness also influence their willingness to accept transfers or promotions.