93 terms

Ch 11

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