Unit07 establishing a pay structure 7 st

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Unit07 establishing a pay structure 7 st

  1. 1. fundamentals of Human Resource Management Unit 07 Establishing a Pay Structure
  2. 2. What Do I Need to Know? 1. Identify the kinds of decisions involved in establishing a pay structure. 2. Summarize legal requirements for pay policies. 2. Summarize legal requirements for pay policies. 3. Discuss how economic forces influence decisions about pay. 4. Describe how employees evaluate the fairness of a pay structure. 11‐2
  3. 3. What Do I Need to Know? (continued) 5. Explain how organizations design pay structures related to jobs. 6. Describe alternatives to job‐based pay. 7. Summarize how to ensure that pay is actually in line with the job structure. 7. Summarize how to ensure that pay is actually in line with the job structure. 8. Discuss issues related to paying employees serving in the military and paying executives. 11‐3
  4. 4. Your Opinion 1‐Strongly Disagree, 3‐Neutral, 5‐ Strongly Agree 1.Pay decisions should be based on performance, not seniority. 2.I would like to know what my coworkers get paid. 2.I would like to know what my coworkers get paid. 3.I would not mind if others knew my salary. 4.Pay secrecy helps a company stay competitive. 11‐4
  5. 5. Introduction • Pay is a powerful tool for meeting the organization’s goals. • Pay has a large impact on employee attitudes and behaviors. • Pay influences the kinds of people who are • Pay has a large impact on employee attitudes and behaviors. • Pay 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 relationship with their employer. 11‐5
  6. 6. Decisions About Pay Job Structure • The relative pay for different jobs within the Pay Level • The average amount the organization pays for a particular job Pay Structure • The pay policy resulting from job structure and pay‐ level • The relative pay for different jobs within the organization • The average amount the organization pays for a particular job • The pay policy resulting from job structure and pay‐ level decisions. 11‐6
  7. 7. Figure 11.1: Issues in Developing a Pay Structure 11‐7
  8. 8. Legal Requirements for Pay Equal employment opportunity Minimum wages Equal employment opportunity Minimum wages Pay for overtime Prevailing wages for federal contractors 11‐8
  9. 9. Legal Requirements for Pay: Equal Employment Opportunity • Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. • Any differences in pay must be tied to such business‐related considerations as job responsibilities or performance. • Any differences in pay must be tied to such business‐related considerations as job responsibilities or performance. • The goal is for employers to provide equal pay for equal work. 11‐9
  10. 10. Legal Requirements for Pay: Minimum Wage • Minimum wage - the lowest amount that employers may pay under federal or state law, stated as an • Fair Labor Standards Act (FLSA) - federal law that establishes a minimum wage and requirements for employers may pay under federal or state law, stated as an amount of pay per hour. that establishes a minimum wage and requirements for overtime pay and child labor. 11‐10
  11. 11. Exercise • A firm has an employee’s base pay which is: $10/hr + $30/wk (bonus). • If an employee works for 50 hours this week (40 regulars and 10 overtime), estimate this employee’s total pay. • Follow the Art of overtime pay of Labor Law of Vietnam. • A firm has an employee’s base pay which is: $10/hr + $30/wk (bonus). • If an employee works for 50 hours this week (40 regulars and 10 overtime), estimate this employee’s total pay. • Follow the Art of overtime pay of Labor Law of Vietnam.
  12. 12. Economic Influences on Pay Product Markets • The organization’s product market includes organizations that offer competing goods and services Labor Markets • Organizations must compete to obtain human resources in labor markets. • Competing for labor 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 • Competing for labor establishes the minimum an organization must pay to hire an employee for a particular job. 11‐14
  13. 13. Pay Level: Deciding What to Pay Pay at the rate set by the market Pay at a rate above the market Pay at a rate below the market Pay at the rate set by the market Pay at a rate above the market Pay at a rate below the market 11‐15
  14. 14. Gathering Information About Market Pay • Benchmarking - a procedure in which an organization compares its own practices against those of successful competitors • Bureau of Labor Statistics (BLS) • Society for Human Resource Management (SHRM) against those of successful competitors • Pay surveys • Trade and industry groups • Professional groups (SHRM) • American Management Association 11‐16
  15. 15. Figure 11.3: Opinions About Fairness - Pay Equity 11‐18
  16. 16. Test Your Knowledge • Mariah found out that a friend of hers with a similar job in the same town makes significantly more money than she does. Which of the following is probably not the cause of this? a) Different cost‐of‐living similar job in the same town makes significantly more money than she does. Which of the following is probably not the cause of this? a) Different cost‐of‐living b) The companies are in different product markets with different pay strategies c) Mariah is a poor performer d) Mariah’s job is non‐exempt 11‐19
  17. 17. Job Structure: Relative Value of Jobs Job Evaluation • An administrative procedure for measuring the relative internal worth of the organization’s jobs. Compensable Factors • The characteristics of a job that the organization values and chooses to pay for. measuring the relative internal worth of the organization’s jobs. organization values and chooses to pay for. - Experience - Education - Complexity - Working conditions - Responsibility 11‐20
  18. 18. Table 11.1: Job Evaluation of Three Jobs with Three Compensable Factors 11‐21
  19. 19. Figure 11.5: Sample Pay Grade Structure Pay grades - sets of jobs having similar worth or content, grouped together to Pay grades - sets of jobs having similar worth or content, grouped together to establish rates of pay. 11‐26
  20. 20. Pay Ranges • Pay ranges - a 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. • Red‐circle rate - pay at a rate that falls above the pay range for the job. • Green‐circle rate - pay at a rate that falls below midpoint of pay for employees holding a particular job or a job within a particular pay grade. • Green‐circle rate - pay at a rate that falls below the pay range for the job. 11‐27
  21. 21. Alternatives to Job‐Based Pay Delayering • Reducing the number of levels in the organization’s job structure. • More assignments are 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. • More assignments are combined into a single layer. • These broader groupings are called broad bands. • More emphasis on acquiring experience, rather than promotions. 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. 11‐30
  22. 22. Exercise – Finding a Compa‐Ratio • Compa‐Ratio (CR) - the ratio of 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. • Compa‐Ratio (CR) - the ratio of 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.
  23. 23. Exercise • Salaries of employees in a Pay Grade are: • Mid point of the Pay Range is $2,175/month. 1. Determine the Compa-Ratio. 2. Determine the Average Salary of Employees. EMPLOYEES SALARY ($) EMPLOYEE 1 2,306 EMPLOYEE 2 2,066 EMPLOYEE 3 2,523 • Salaries of employees in a Pay Grade are: • Mid point of the Pay Range is $2,175/month. 1. Determine the Compa-Ratio. 2. Determine the Average Salary of Employees. EMPLOYEE 3 2,523 EMPLOYEE 4 2,414
  24. 24. Summary • Organizations make decisions to define a job structure, or relative pay for different jobs within the organization. Organizations also must establish pay levels, or the average paid for the different jobs. • These decisions are based on the organization’s goals, market data, legal requirements, and principles of fairness. • These decisions are based on the organization’s goals, market data, legal requirements, and principles of fairness. • Together, job structure and pay level establish a pay structure policy. 11‐36
  25. 25. Summary (continued) • To remain competitive, employers must meet the demands of the product and labor markets. • Limit their costs as much as possible. • Pay at least the going rate in their labor markets. • According to equity theory, employees think of their pay relative to their inputs - training, experience, and effort. • According to equity theory, employees think of their pay relative to their inputs - training, experience, and effort. • To decide whether their pay is equitable, they compare their outcome (pay)/input ratio with other people s outcome/input ratios 11‐38
  26. 26. Summary (continued) • The traditional approach to building a pay structure is to use a job‐based approach. • Alternatives to the traditional approach include broad banding and skill‐based pay. 11‐39

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