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pay has a large impact on employee

attitudes and behaviors

Pay is a powerful tool for meeting the orgs goals because

-pay has a large impact on employee attitudes and behaviors
-influences the kinds of people who are attracted to (or remain with) the org
-employees attach great importance to pay decisions when they evaluate their relationship with their employer

Decisions about pay

decisions about pay need to be made within an organized set of rules that are aligned with the orgs goals; job structure, pay level, and pay structure

Job Structure

the relative pay for different jobs within the org. establishes relative pay among different functions and different levels or responsibility.

Pay Level

the average amount (including wages, salaries, and bonuses) the org pays for a particular job

Pay Structure

the pay policy resulting from job structure and pay-level decisions

an unplanned approach, in which an employee's pay is independently negotiated, will likely result it

unfairness, dissatisfaction, and rates that are either overly expensive or so low that positions are hard to fill

Together job structure and pay level establish a pay structure that helps the org achieve its goals related to

motivation, cost control, and the ability to attract and retain talented human resources.

the amount a person earns depends on the individuals:

qualifications, accomplishments and experience.
* may also depend partly on how well an org performs.

why would it be impractical for managers and HR make entirely unique decisions about each employees pay

because it is too expensive, difficult, and often unsatisfactory

Establishing a pay structure simplifies the process of making decisions about

individual employee's pay by grouping together employees with similar jobs

Issues in developing a pay structure is based on

-legal requirements
-market forces ( Product and Labor Markets)
-Org's goals ( attracting high-quality workforce,cost control, equit and fairness and legal compliance)
** these three impact Pay level decsions, Job structure decisions and pay structure decisions (pay rates, pay grades, pay ranges, and pay differentials)

What are the kinds of decisions involved in establishing a pay structure

-orgs make decisions to define a job structure, or relative pay for different jobs within the org
-relative pay for different functions and different levels of responsibilty for each function
-Pay levels, or average pay for different jobs; these decisions are based on an orgs goals, market data, legal req's, and principles of fairness.
-together, job structure and pay level establish a pay structure policy

Gov't regulation affects pay structure in the areas of

EEO, min.wages, overtime pay, and prevailing wages for federal contractors.

Legal Requirements for Pay- EEO

-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 business-related considerations such as job responsibilties or performance
-GOAL: to provide equal pay for equal work

What can help orgs demonstrate they areupholding EEO laws

job descriptions, job structures, and pay structures

Who do the EEO laws NOT guarantee equal pay for and why:

-men and women
-whites and minorities
-or any other group
* b/c of so many legitimate factors:
-choice of occupation
affect a persons earnings

Equal pay for Comparable worth policy

this policy uses job evaluation to establish the worth of an org's jobs in terms of such criteria as their difficulty and their importance to the org

Minimum Wage

the lowest amount that employers may pay under federal or state law , stated as an amount or pay per hour
*a wage is a the rate of pay per hour

Fair Labor Standards Act (FLSA)

federal law that establishes a minimum wage and requirements for overtime pay and child labor

Living Wage

a minimum wage based on cost of living in a particular area

FLSA's lower "training wage" criteria

employers may pay workers under 20 for a period of up to 90 days a lower wage. The subminimum wage is approx. 85% of the min. wage.

When states have laws specifying minimum wages, these states must pay wichever rate is (higher/lower)


What is the issue related to min. wage from the standpoint of social policy

min wage tends to be lower than the earnings required for a full time worker to rise above the poverty level

Overtime Pay

hours worked over 40hrs/ week.
Exempt employees: managers, outside sales people, and any other ppl not covered by FLSA req. for overtime pay.
Non-Exempt: employees covered by FLSA req. for overtime pay

What is the overtime rate under FLSA

1.5 x usual hourly rate; including any bonuses, and piece-rate payments

Overtime is required, whether or not the employer specifically

asked or expected the employee to work more then 40 hrs

What happends if the employer knows the employee is working overtime but does not pay time and a half

the employer may be violating the FLSA

What four states have favorable overtime rules (>8hours/day)

Alaska, Cali, Colorado, and Nevada. Plus Puerto Rico
**not a legal requirement to have more favorable OT rules

Child Labor

FLSA sharply restricts child labor of ages under 18

Children ages 16 and 17 may not be employed in

hazardous occupations defined by the dept of labor; i.e. mining, meatpacking, and certain kinds of manufacturing using heavy machinery.

Children ages 14 and 15 may work only..

outside school hours, in jobs defined as non-hazardous, and for limited time periods

Children under 14 may not be employed in any work associated with

interstate commerce, except work performed in nonhazardous job for a business entirely owned by the childs parent or legal gardian; exception are baby-sitting, acting and delivering newspapers to consumers

State laws also restrict child labor by

requiring working papers or work permits for minors, and many states restrict the number of hours or times of day that minors aged 16 and older may work.

Before hiring any workers under 18, employers must ensure they are complying with

the child labor laws of their state and the FLSA requirements for their industry

Prevailing Wages-two additional federal laws

-Davis-Bacon Act of 1931
-Walsh-Healy Public Contracts Act of 1936
*these are govern pay policies of federal contractors
*Under these laws, federal contractors MUST pay their employees rates AT LEAST equal to the prevailing wages in the area

The calculation of prevailing rates

must be based on 30% of the local labor force
* typically the rates are based on relevant union contracts (pay earned by union members tends to be higher then non-union members)

What is the effect of the Davis-Bacon Act and Walsh-Healy Public Contracts Act on pay?

to raise the lower limit of pay an employer can offer

The Davis-Bacon Act and Walsh-Healy Public Contracts Act, do not cover all companies. What do each cover?

Davis-Bacon: covers construction contractors that recieve more then $2,000 in federal money
Walsh-Healy: covers all gov't contractorsrecieving more then $10,000 or more in federal funds

What are the legal req's for pay policies?

- meet the EEO: by providing equal pay for equal work; regardless of anemployee's age,race, sex, or other protected status
-Differences in pay must relate to factors such as a person's qualifications or market levels of pay
-Fair Labor Standards Act (FLSA): employer must pay at least the min. wage established by law; also requires overtime pay; there are exempt workers who do not have to be paid overtime (managers, professionals, outside salesppl)
-Employers must mmet req's concerning child labor
-Federal Contractors: must meet req's to pay at least the prevailing wage in the area where their employees work.

Decisions about how to respond to the economic forces of product markets and labor markets limit

an org's choices about pay structure

An org cannot make decsions independent of

the economy

orgs must keep their costs low enough so

they can sell their products profitably, yet they must be able to attract workers in a competitive labor market

Product Markets

the orgs product market includes orgs that offer competing goods and services; orgs in a product market are competting to serve the same customers

in a product market, orgs may try to win customers by being superior in a number of areas, such as:

quality, customer service, and price

What is an important influence of price

the cost to prodce the goods or services for sale

Product markets place an upper limit on

the pay an org will offer
* this upper limit is most imporatnt when labor costs are a large part of an orgs total costs and when the orgs customers place great importance on price

orgs under pressure to cut labor costs may respond by:

reducing staff levels, freezing pay levels, postponing hiring decisions, or requiring employees to bear more of the cost of benefits such as insurance premiums

Labor Markets

orgs must compete to obtain human resources in labor markets; workers prefer higher-paying jobs (in general) and avoid employers that offer less money for the same type of job

In contrast toproduct markets, labor markets place a LOWER limit by

establishing the minimum an org must pay to hire an employee for a particular job
*if employers pay less then the minimum, employees will look for jobs with other orgs

orgs want to know what other companies are paying so that they can

pay enough to attract and keep qualified employees

cost of living

the cost of a household's typical expenses, such as house payments, groceries, medical care, and gasoline.
*the higher the cost of living, local labor markets will likely demand higher pay

Cunsomer Price Index (CPI)

a measure used by the federal gov't that tracks trends in the nation's cost of living; following and studying changes in the this can help employers prepare for changes in the demands of the labor market

employers can be more flexible about pay policies if they use

technology and work design to get better results from employees then competitiors do

when orgs have a broad range in whichto make decisions about pay, they can choose to pay

at, above or below the rate set by market forces

pay policies are one of the most important hr tools for

encouraging desired employee behaviors and discouraging undesired behaviors

Orgs must evaluate pay as more than a cost, it is also an

investment that can generate returns in attracting, retaining, and motivation a high-quality workforce


a procedure in which an org compares its own practices against those of successful competitors
*orgs use this to compete for talent

in terms of compensation, benchmarking involves the use of

pay surveys; orgs can make there own surveys but the federal gov't and other orgs make a great deal of data available already

Pay Surveys

-available for many kins of industries; product and labor market jobs
-primary collector of these is the US bureau of labor statistics:National Compensation Survey

National Compensation Survey measures

wages, salaries, and benefits paid to the nations employees

HR professionals need to determine whether to gather pay data focusing on either

particular industries or on job categories
-Industry-specific: relevant for jobs with skills that are specific to the type of product
-Job Classification-specific: relevant for jobs that can be transferred to companies in other industries

How do economic forces influence decisions about pay

-to remain competitive, employers must meet the demands for product and labor markets
-product markets seek to buy at the lowest price; so orgs must limit their costs as much as possible; in this way, product markets place an upper limit on the pay an employer can afford to offer
-labor markets:consists of workers who earn as much as possible; to attract workers, employers must offer at least the going rate; orgs make decisions about pay at, above or below the pay rate set by the market forces
-paying above the market rate may make an org less competitive in product markets but give an advantage in labor markets
-the org only benefits if it can attract th ebest candidates and provide the systems that motivate and enable them to do their best work
-Orgs that pay below market rate may need creative practices for recruiting and training workers so that they can find and keep enough qualified ppl.

Job evaluation

an administrative procedure for measuring the relative internal worth of the orgs jobs
*a typical way of creating a pay structure
*there is a job evaluation committee; oftern includes an HR specialist and maybe even an outside consultant
*committee identifies each jobs compensable factors
*provides the basis for decisions about relative internal worth

creation of pay structure requires that the org develop an

internal structure showing the relative contribution of its various jobs

compensable factors

the characteristics of a job that the org values and chooses to pay for (experience, education, complexity, working conditions, responsibility)
* points are given to each factors; these points comes from point manuals

point manuals

published by trade groups and management consultants; an org can adapt the scores to better suit the orgs situation. or they can develop their own point manual

Key jobs

the org may limit its pay surveys to jobs evaluated as key jobs; these are jonbs that have relatively stable content and are common among many orgs

the pay structure reflects decsions about

how much to pay (pay level) and the relativevalue of each job (job structure)

the orgs goal is to set levels of pay that employees will consider

equitable and motivating

hourly wage

rate of pay for each hour worked

piecework rate

rate of pay for each unit produced


rate of pay for each week, month, or year worked

pay policy line

a graphed line showing the mathmatical realtionship between job evaluation points and pay rate
*the line slopes from left to right
*if higher-level jobs are especially valuable to the org, the line may curve upward to indicate even greater pay for high-level jobs
*using this line , the analyst can estimate the market pay level for a given job evaluation

a pay policy line reflects

the pay structure in the market, which does not always match the rates in the org

Pay grades

set of jobs having similar worth or content, grouped together to establish rates of pay
*used when orgs have many different jobs and setting a pay rate is too complex for each job
*jobs are grouped together

drawback of pay grades

grouping jobs will result in rates of pay for individual jobs that do not precisely match the levels specified by the market and the org's job structure
*create difficulty for recruitng and retaining employees

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
*employees holding the same job may recieve somewhat different pay, depending on where their pay falls within the range
*provides flexibility
*the market rate of pay policy line is typically the midpoint
-most common in white-collar jobs and for jobs that are NOT covered by union contracts
*higher-level employees have the widest pay range b/c their performance will have more affect on the orgs performance
*ranges tend to overlap so the highest pay in one grade is somewhat higher then the lowest pay in the next grade
*overlapping gives orgs more flexibility in transferring employees among jobs, transfers need not always a change in pay
*if the org wants to motivate employees through promotions they will want less overlap

Pay differentials

adjustment to a pay rate to reflect differences in working conditions or labor markets
*higher pay to night shifts, or high living expenses
*over half og orgs have a formal or informal policy of provideing these based on geographic location

Explain how orgs design pay structures related to jobs

-orgs typically begin with a job evaluation to measure the relative worth of their jobs; a job evaluation committte identifies each job's compensable factors and rates each factor, may use point manuals to assign appropriate number of points to each job
-committe can research market pay levels for key job, then identify appropriate rates for other jobs, based on their number of points relative to the key jobs; to org can do this with a pay policy line, which plots a salary for each job
-the org can combine jobs into several groups, called pay grades; for each grade or job, the org typically establishes a pay range, using the market rate or pay policy line as the midpioint
-differences in working conditions or labor markets sometimes calls for the use of pay differentials to adjust pay levels

A common way to compare actual pay to the pay structure to ensure that policies and practices match is to measure a



the ratio of average pay to the midpoint of the pay range
*if the average=midpoint then the compa ratio is 1
*more often, the compa-ratio is somewhat above 1 or below 1

A compa-ratio somewhat above 1

the average pay is above the midpoint for the pay grade; the org is paying more then planned for human resources and may have difficulty keeping costs under control

A compa-ratio somewhat below 1

the average pay is below the midpoint; the org in underpaying for human resources relative to its target and may have difficulty attracting and retaining qualified employees

assuming the pay structure supports the orgs goals, the compa-ratios should be close to


When compa-ratios are more or less then 1, the HR dept should work with managers to

identify whethee to adjust the pay structure or the orgs pay practices

an orgs policies regaridng pay structure greatly influence

employees and even the general public's opinions about the org

Issues affecting pay structure can hurt or help the orgs reputation and ability to

recruit, motivate and keep employees

recent issues realted to pay structure include decsions about

-paying employees on active duty
-how much to pay the orgs top executives

Uniformed Services Employment and Reemployment Rights Act (USERRA)

requires employers to make jobs available to thier workers when they return after fulfilling military duties for up to five years

a significant form of executive compensation comes in the form of

company stock

the issues of executive pay is relevant to pay structure in terms of

equity theory

What are the issues related to paying employees serving in the military and paying executive

-while employees are performing their military service, many are earning far less; to demonstrate their commitment to these employees and to earn public's goodwill, many companies pay the difference between their military and civillian earnings, even though it is costly
-executive pay has drawn public scrutiny b/c top executive pay is much higher then average workers pay; the great difference is in terms of equity theory:
-Chief executive officers have an extremely large impact on the orgs performance, but critics complain that when performance falters, executive pay does not decline as fast as the org's profits or stock price.
-top executives help set the orgs tone and culture, and employees at all levels are affected by the behavior of the people at the top; employees opinions about the equity of executive pay can have a large effect on the orgs performance

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