CHAPTER 11: ESTABLISHING A PAY STRUCTURE (ECONOMIC INFLUENCES ON PAY …
CHAPTER 11: ESTABLISHING A PAY STRUCTURE
Pay is a powerful tool for meeting the organization’s goals and a major cost.
Pay has a large impact on employee attitudes and behaviors.
It 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.
LEGAL REQUIREMENTS FOR PAY
lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour.
Fair Labor Standards Act (FLSA) – federal law that establishes a minimum wage and requirements for overtime pay and child labor.
Nonexempt employees – employees covered by FLSA requirements for overtime pay.
Overtime pay is required, whether or not the employer specifically asked or expected the employee to work more than 40 hours.
Exempt employees – managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay.
Equal employment opportunity
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.
Employers must not base differences in pay on an employee’s age, sex, race, or other protected status.
Prevailing wages for federal contractors
Two federal laws govern pay policies of federal contractors: Davis-Bacon Act of 1931; Walsh-Healy Public Contracts Act of 1936
Under these laws, federal contractors must pay their employees at rates at least equal to the prevailing wages in the area.
ECONOMIC INFLUENCES ON PAY
Employee Judgments About Pay Fairness
Employees compare their pay and contributions against three yardsticks
What they think other employees holding different jobs within the organization earn for doing work at the same or different levels.
What they think other employees in the organization earn for doing the same job as theirs.
What they think employees in other organizations earn for doing the same job.
If employees conclude that they are under-rewarded, they are likely to make up the difference in one of three ways:
They might put forth less effort (reducing their inputs).
They might find a way to increase their outcomes (e.g., stealing).
They might withdraw (by leaving the organization or refusing to cooperate).
Employees’ beliefs about fairness also influence their willingness to accept transfers or promotions.
Gathering Information About Market Pay
Bureau of Labor Statistics (BLS)
Society for Human Resource Management (SHRM)
Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors.
Administrative procedure for measuring relative internal worth of the organization’s jobs.
5 characteristics of a job that the organization values and chooses to pay for.
Deciding What to Pay
Pay at a rate above market
Pay at a rate below market
Pay at rate set by market
Pay policy line is established.
Pay rates for non-key jobs are then determined.
Organization obtains pay survey data for its key jobs.
Organizations must compete to obtain human resources in labor markets.
Competing for labor establishes minimum an organization must pay to hire an employee for a particular job.
Red-circle rate – pay at a rate that falls above pay range for the job.
Green-circle rate – pay at a rate that falls below pay range for the job.
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.
Organizations compete on quality, service, and price.
Cost of labor is a significant part of an organization’s costs.
Organization’s product market includes organizations that offer competing goods and services.
Many businesses in the U.S. provide pay differentials based on geographic location.
The most common approach is to move an employee higher in the pay structure to compensate for higher living costs.
Pay differential – adjustment to a pay rate to reflect differences in working conditions or labor markets.
Alternatives to Job-Based Pay
More assignments are combined into a single layer called broad bands.
More emphasis on acquiring experience, rather than promotions.
Reducing number of levels in organization’s job structure.
Skill-based pay system
Pay structures that set pay according to employees’ levels of skill or knowledge and what they are capable of doing.
Appropriate where changing technology requires employees to continually widen and deepen their knowledge.
Current Issues in Pay
Pay During Military Duty
How should companies handle employees who are called for active duty in the military for extended time periods?
Uniformed Services Employment and Reemployment Rights Act (USERRA)
Pay for Executives
Based on equity theory, how does executive compensation affect employees?