Pay Structure Decision
Once employees have done their job and been appraised, they
expect to be paid. Each empoyee’s pay should make sense in terms
of the company’s overall pay plan.
“ How to establish a pay plan ” and how to price the job in your
firm developing pay plan. & why and how organizations attach pay
policies to jobs.
Employer’s Point Of View:
1- Powerful tool for achieveing organaization’s strategic goals.
2- Large Impact on employee behavior & attitude.
3- Powerful tool for retain current employee.
4- Significant Organizational Cost requires for aquiring the
human resource for running operation
What is Pay
Employee’s Point Of View
1- Having good salary for their job satisfaction
2- wages, salaries, and other earning effect thier over all
income & Standard of living.
3- Fairness in pay distribution.
4- Pay is sign status and success.
5- Other bonuses and incentive for the encouragment of their
6- Work with honesty and remain loyall
Pay decision can be broken into two areas:
1- Pay Structure:
The relative pay of different jobs (Job structure)
and how much they are paid (Pay Level).
2- Pay Level:
The Average pay, including wages, salaries, and
bonuses, of job in an organization.
Consider the same two jobs in two different organizations. In
organization 1, job A and B are paid an annual average
compensation of $40000 and $60000 respectively. In organization
2 the pay rates are $45000 and $55000 respectively. Organization 1
and 2 have the same pay level ($50000) but the job structure
(relative rates of Pay) differ. Both pay level and jobs structure are
characteristics of organization and reflect decision about jobs rather
than about individual employees.
Why is the focus on jobs in developing a pay
Number of employees in an organization increases.
Take many decision in determining compensation.
Employees must be required a rate of pay that is acceptable in
terms of external, internal and individual equity and in terms
of employer’s cost.
Each employee are unique and thus requires some degree of
Standarizing the treatment of similar employees (those with
similar jobs) can help greatly to make compensation
administration and decision making more manageable and
more equitable. Thus pay policies are often attached to
particular jobs rather than tailored entirely to individual
Internal Equity recognizing employee
contribution with pay
Employees often evaluate their pay relative to that of other
employees. Equity theory suggest that people evaluate the
fairness of their situations by comparing them with those
of other peopl e. According to the theory, A person (p) compare
his own ratio of perceived outcomes O (pay, benefits, working
conditions) to perceived inputs (efforts, ability, experience) to the
ratio of comparison other (o) this is called equity theory.
Op/Ip <, >, or = Oo/Io ?
Equity Theory (or Adam’s Equity Theory)
It explains the thought process an employee uses to determine the
fairness of management decision making. The core of equity theory says
that individuals judge the fairness of their treatment based on how others
like them are treated. Employees make social comparisons to others who
are similarly situated in the organization. Said another way, an employee
asks himself the following: Based on what I am giving to this
organization (inputs), am I getting the same rewards (outcomes) as
others are getting who give similar inputs?
Equity theory shows that inequities (perceived or real) harm
Reducing one’s own inputs (not work as hard)
Increasing one’s outcomes (such as by theft)
Leaving the situation that generates perceived inequity
(leaving the organization or refusing to work or cooperate with
employees who are perceived as overrewarded.
Go into survival mode (do their job and little more)
Become resistant (act out on other issues)
Become overly competitive (focus on reducing the outputs of