Capitulo 9 - Compensation

Question 1

What is pay?

Answer 1

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.

Question 2

What are the decisions about pay?

Answer 2

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.

Question 3

What are the issues in developing a pay structure?

Answer 3

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

Question 4

Pay Structure: Legal Requirements for Pay

What is equal employment opportunity?

Answer 4

Two employees who do the same job cannot be paid different
wages because of gender, race, or age.

Question 5

Pay Structure: Legal Requirements for Pay

What are minimum wages?

Answer 5

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.

Question 6

Pay Structure: Legal Requirements for Pay

What is pay for overtime?

Answer 6

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.

Question 7

Pay Structure: Market Forces

What are product markets?

Answer 7

• 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.

Question 8

Pay Structure: Market Forces

What are labor markets?

Answer 8

• 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.

Question 9

Pay Structure: Pay Level Decision

What is pay level?

Answer 9

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

Question 10

Pay Structure: Job Structure Decision

What is job structure?

Answer 10

The relative pay for different jobs within the organization.

Question 11

Pay Structure: Job Structure Decision

What is job evaluation?

Answer 11

An administrative procedure for measuring the relative internal worth of the organization’s jobs.

Question 12

Pay Structure: Job Structure Decision

What are compensable factors?

Answer 12

The characteristics of a job that the organization values and chooses to pay for, e.g.:
- Experience
- Education
- Complexity
- Working conditions
- Responsibility

Question 13

Pay Structure: Job Structure Decision

What are key jobs?

Answer 13

Jobs that have relatively stable content and are common among many organizations.

Question 14

Pay Structure: Job Structure Decision

How can organisation’s make the process of creating the job structure and pay structure more practical?

Answer 14

By defining key jobs.
Research for creating the pay structure is limited to the key jobs that play a significant role in the organization.

Question 15

Pay Structure: Pay Structure Decision

How is the Pay Structure Decision

Answer 15

Job Evaluation
Job Structure
Define Key Jobs
Pay Survey
Pay Policy Line
Pay Rates
Pay Grades
Pay Ranges
Pay Structure

Question 16

Pay Structure: Pay Structure Decision

What are pay rates?

Answer 16

1. Organization obtains pay survey data for its key jobs.
2. Pay policy line is established.
3. Pay rates for non-key jobs are then determined.

Question 17

Pay Structure: Pay Structure Decision

What is pay policy line?

Answer 17

A graphed line showing the mathematical relationship between job evaluation points and pay rate.

Question 18

Pay Structure: Pay Structure Decision

What are pay grades?

Answer 18

Sets of jobs having similar worth or content, grouped together to establish rates of pay.

Question 19

Pay Structure: Pay Structure Decision

What are pay ranges?

Answer 19

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.

Question 20

Pay Structure and Actual Pay

What should the HR department do to make sure that policies and practises match?

Answer 20

The HR department should compare actual pay to the pay structure.
Compa-ratio is the common way to do this.

Question 21

Pay Structure and Actual Pay

What is compa-ratio?

Answer 21

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.

Question 22

What are the alternatives to job-based pay?

Answer 22

Delayering, skill-based pay systems.

Question 23

alternatives to job-based pay

What is delayering?

Answer 23

• 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.

Question 24

alternatives to job-based pay

What is skill-based pay systems?

Answer 24

• 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.

Question 25

Employee Judgments About Pay Fairness

What are the three yardsticks that employees compare their pay and contributions against?

Answer 25

1. What they think employees in other organizations earn for doing the same job.
2. What they think other employees holding different jobs within the organization earn for doing work at the same or different levels.
3. What they think other employees in the organization earn for doing the same job as theirs.

Question 26

Pay Equity

What is pay equity?

Answer 26

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.