Internal data would drive 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 dissatisfaction.
An organization should consider its strategy, what
jobs and/or functions will be critical for success and market-competitive pressures.
Monitoring Compensation Costs One way to examine the difference between policy and practice is to compute a compa-ratio , which is an index of the correspondence between actual and intended pay. 11-
Globalization, Geographic Region and Pay Structure
Pay structures differ across countries
in level and relative worth of jobs.
Although expatriate pay and benefits
have been linked more closely to the home country, this link now appears to depend more on the assignment’s nature and length.
The Importance of Process: Participation and Communication
Participation should involve those who will manage and be affected by the process.
Participation includes recommending, designing and communicating a pay program.
Typically, pay-level decisions are only made by top management.
The effect of communication is likely to 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.
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 yesterday may not be helpful today and tomorrow.
system encourages promotion-seeking behavior, but discourages lateral movement.
3 Responses to Problems with Job-based Pay Structures:
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.
Can the U.S. Labor Force Compete?
U. S. labor cost are high compared to newly industrialized and developing countries.
Executive pay has been given 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 the organization's performance.
CEO Remuneration in U.S. Dollars 11-
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.
Equal Employment Opportunity
(EEO) regulations prohibitssex and race-based differences in employment outcomes such as pay, unless justified by business necessity.
Organizations must also deal with changing labor market and demographic realities.
2 Trends Related to EEO:
increasing participation of women and nonwhites in the labor force.
proportion of wages in 2006 that women earn compared to men was 81 % and black to white earnings was 80 % .
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.
The Fair Labor Standards Act (FLSA) of 1938 established a minimum wageand overtime pay rate.
Minimum wage is $7.25 an hour. It is the lowest amount that employers are legally allowed to pay.
Executive, professional, administrative and outside sales are exempt from FLSA coverage.
Exempt – those employees 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.
Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay.
Employees make external comparisons between their pay and the 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).
Such comparisons play an important role in the controversy over executive pay.
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 structures is moving to fewer pay levels to reduce labor costs and bureaucracy and shifting from paying employees for narrow jobs to giving broader responsibilities and paying them to learn necessary skills.