This document discusses key aspects of developing an organizational pay structure, including: 1) Pay structures determine the relative pay of jobs and pay levels, which are attached to jobs not individuals. 2) Developing pay levels involves considering both product market and labor market competition. 3) Developing a job structure involves job evaluation and compensable factors, while a pay structure groups jobs into pay grades. 4) Current challenges include problems with job-based structures and a shift toward competency-based pay.

1. CH11
PAY STRUCTURE DECISION
Muhammad Nabil Risqika 1711011102
Princhita Nabila Maram Pahlawan 1711011128

2. Introduction
Employer’s View:
• Pay is critical in
attaining strategic
goals.
• Pay impacts employee
attitudes and behaviors.
• Employee
compensation is
significant
organizational cost.
Employee’s View:
• Policies having to do w
ith wages, salaries, an
d other earnings affec
t their overall income
and thus their standar
d of living.
• Both level of pay and f
airness compared with
others’ pay are importa
nt.

3. Developing Pay Levels
1 2
3 4
relative pay of different jo
bs (job structure) and ho
w much they are paid (pa
y level).
Pay Structure
relative pay of jobs (the ra
nge of pay often express
ed by salary grades).
Job Structure
average pay, including wa
ges, salaries and bonuse
s.
Pay Level
Attached to jobs not
individuals
Pay Policies

4. Developing Pay Levels
2 Competitive Market Challenges in Pay Decisions
– Product-market competition –challenge to sell goods and services at
a quantity and price thatwill bring a return on investment.
– Labor-market competition –amount an organization must pay to com
pete against other organizations that hire similar employees.

5. Product Market vs Labor Market
Product-market comp
arisons will be more
important when:
• Labor costs represen
t a large share of tota
l costs.
• Product demand is e
lastic.
• The supply of labor i
s inelastic.
• Employee skills are s
pecific to the product
market.
Labor-market co
mparisons will
be more importa
nt when:
• Attracting and ret
aining employees
is difficult.
• The costs of re
cruiting are high
.

6. Developing a Job Structure Developing a Pay Structure
 Job structure- relative worth of various job
s in the organization, based on internal co
mparisons.
 Job evaluation is an administrative procedure
used to measure internal job worth.
 The evaluation process is composed
of compensable factors, which are t
he characteristics of jobs that an org
anization values and chooses to pay
for.
 Job evaluators often apply a weighti
ng scheme to account for the differin
g importance of compensable factor
s to the organization.
 3 Pay-setting Approaches:
– Market Survey Approach - The greatest emphasis is
on external comparisons. It bases pay on market
surveys that cover as many key jobs as possible
.
2. Pay Policy Line - A mathematical expressio
n that describes the relationship between a j
ob’s pay and its job evaluation points.
3. Pay Grades- Grouping jobs of similar wor
th or content together for pay administrati
on purposes.
 Range spread is the distance between mi
nimum and maximum amounts in a pay gr
ade.

7. Conflicts
Market Pay Surveys & Job Evaluation
 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 dissati
sfaction.
 An organization should consider its strategy, what
jobs and/or functions will be critical for success and market-competitive pressures.

8. The
Importance
of Process
Participation
 Participation should i
nvolve those who will
manage and be affect
ed by the process.
 Participation inclu
des recommendin
g, designing and
communicating a
pay program.
 Typically, pay-level d
ecisions are only ma
de by top managem
ent.
Communication
 The effect of communi
cation is likely to impa
ct employees' percept
ions of equity.
 Managers must be pr
epared to explain why
the pay structure is d
esigned the way it is
and to judge whether
changes should be m
ade to the structure.

9. Current Challenges Job-based pay structures can cr
eate problems:
 reinforces top-down decisio
n making as well as status
differentials.
 bureaucracy, time and cost r
equired to generate and upd
ate job descriptions can bec
ome a barrier to change.
 job-based structure ma
y not reward desired b
ehaviors, where the kno
wledge, skills, and abili
ties needed yesterday
may not be helpful toda
y and tomorrow.
 system encourages promotio
n-seeking behavior, but disco
urages 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, kn
owledge and competency.
Skill-based pay - paying individuals for skills th
ey are capable of using rather than for the job t
hey are performing.

10. Equal Employment Opportunity
 (EEO) regulations prohibitssex and race-based differences in empl
oyment outcomes such as pay, unless justified by business necessi
ty.
 Organizations must also deal with changing labor market and dem
ographic 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 %.

11. Comparable Worth
 Comparable worth (or pay equity) is a public policy that advoc
ates remedies for any undervaluation of women's jobs.
 Based on the idea that individuals should obtain equal pa
y, not just for jobs of equal content, but for jobs of equal
value or worth.
 Courts have consistently ruled that using the going market ra
tes of pay is acceptable defense in comparable worth litigatio
n suits.

12. Wage Laws
 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 th
at employers are legally allowed to pay.
 Executive, professional, administrative and outside sales are
exempt from FLSA coverage.
 Exempt – those employees not covered by the
FLSAand not eligible for overtime pay.
 Davis-Bacon Act and Walsh-Healy Public Contracts A
ct require federal contractors to pay employees no less th
an area’s prevailing wages.