4. Learning Objectives
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1. List major decision areas & concepts in employee
compensation management.
2. Describe major administrative tools used to manage
employee compensation.
3. Explain importance of competitive labor-market and
product-market forces in compensation decisions.
4. Discuss the significance of process issues such as
communication in compensation management.
5. Describe new developments in pay structure designs.
6. Explain where U.S. stands on pay issues from an
international perspective.
7. Explain reasons for executive pay controversy.
8. Describe regulatory framework for employee
compensation.
5. Introduction
Employer’s View:
Pay is critical in attaining strategic goals.
Pay impacts employee attitudes & behaviors.
Employee compensation is significant organizational cost.
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Employee’s View:
Policies regarding wages, salaries & other earnings affect their overall
income and standard of living.
Both level of pay & fairness compared with others’ pay are important
6. Pay structure - relative pay of different
jobs (job structure) & how much they
are paid (pay level).
Pay level - average pay, including
wages, salaries & bonuses.
Job structure - relative pay of jobs
(range of pay often expressed by
salary grades).
Pay policies are attached to jobs, not
individuals.
Developing Pay
Levels
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8. Developing Pay Levels-Market Pressures
sell goods and services at a
quantity and price that will bring
a return on investment.
amount an organization must pay
to compete against other
organizations that hire similar
employees.
Product
01 Labor
02
2 Competitive Market Challenges in Pay Decisions
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9. 2 Components of Labor Costs
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Average
cost per
employee
Staffing
level
Labor
Costs
10. Employees as a
Resource
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A philosophy that considers employees to be an
investment that will yield valuable returns.
Controlling costs through noncompetitive pay
can result in low employee productivity and
quality.
Pay policies and programs are important HR
tools for encouraging desired employee
behaviors and discouraging undesired
behaviors.
11. Deciding What to Pay
Deciding pay levels is discretionary and
is based on a broad range.
The organization has to decide whether
to pay at, below, or above the market
average.
Efficiency wage theory - wages
influence worker productivity.
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12. Market Pay Surveys
Benchmarking - procedure by which an
organization compares its own practices
against the competition.
3 issues to consider before using pay surveys:
1. Which employers should be included in
the survey?
2. Which jobs are included in the survey?
3. If multiple surveys are used, how are all
rates of pay weighted and combined?
.
FID MORE
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13. Developing a Job
Structure
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Job structure - relative worth of various jobs in based
on internal comparisons.
Job evaluation - administrative procedure used to
measure internal job worth.
The evaluation process is composed of
compensable factors, which are characteristics of
jobs that an organization values and chooses to pay.
Job evaluators often apply a weighting scheme to
account for differing importance of compensable
factors to the organization.
14. Conflicts – Market Pay Surveys & Job Evaluation
Internal data drives 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.
01 02 03
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15. Participation &
Communication
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Participation
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.
Communication
The effect of
communication
impacts 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.
16. 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.
Current Challenges
Job-based pay structures can create problems
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17. Responses To Problems With
Job-Based Pay Structures
Delayering and Banding
01
Skills Based
Competency Based
02
03
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19. Executives have a
disproportionate ability to
influence organizational
performance.
Issues include not only how
much executives are paid but
how they are paid
Executive Pay
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Executive pay accounts for a small
proportion of labor costs
