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11-1McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
fundamentals of
Human Resource Management 4theditionby R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright
CHAPTER 11
Establishing a Pay Structure
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Figure 11.1:
Issues in Developing a Pay Structure
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Legal Requirements for Pay:
Equal Employment Opportunity
Employers must not base differences in pay on
an employees age, sex, race, or other
protected status.
Any differences in pay must be tied to such
business-related considerations asjob
responsibilitiesorperformance.
The goal is for employers to provide equal pay
for equal work.
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Economic Influences on Pay
Product Markets
The organizationsproduct
marketincludes
organizations that offercompeting goods and
services.
Organizations compete on
quality, service, and price. The cost of labor is a
significant part of an
organizations costs.
Labor Markets
Organizations must
compete to obtain human
resources in labor markets. Competing for labor
establishes the minimum an
organization must pay to
hire an employee for aparticular job.
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Gathering Information About Market Pay
Benchmarkingaprocedure in which anorganization comparesits own practicesagainst those ofsuccessful competitors
Pay surveys
Trade and industrygroups
Professional groups
Bureau of Labor
Statistics (BLS)
Society for Human
Resource Management(SHRM)
WorldatWork
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Employee Judgments About Pay Fairness
Employees compare their pay and
contributions against three yardsticks:
1. What they think employees in other
organizations earn for doing the same job.
2. What they think other employees holding
different jobs within the organization earn for
doing work at the same or different levels.3. What they think other employees in the
organization earn for doing the same job as
theirs.
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Job Structure: Relative Value of Jobs
Job Evaluation
An administrative
procedure for
measuring the relativeinternal worth of the
organizations jobs.
Compensable Factors
The characteristics of a
job that the
organization values andchooses to pay for.
Experience
Education
Complexity
Working conditions
Responsibility
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Pay Ranges
Pay rangesa set of
possible pay rates
defined by a minimum,
maximum, andmidpoint of pay for
employees holding a
particular job or a job
within a particular paygrade.
Red-circle ratepay at
a rate that falls above
the pay range for the
job. Green-circle ratepay
at a rate that falls below
the pay range for the
job.
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Pay Differentials
Pay differentialadjustment to a pay rate to
reflect differences in working conditions or
labor markets.
Many businesses in the United States 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.
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Pay Structure and Actual Pay
Pay structure represents the organizations
policy.
However, what the organization actually does
may be different.
The HR department should compare actual
pay to the pay structure, making sure that
policies and practices match.
Compa-ratiois the common way to do this.
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Figure 11.7: Finding a Compa-Ratio
Compa-Ratio (CR) the
ratio of average pay to the
midpoint of the pay range.
If the average equals the
midpoint, CR is 1.
If CR is greater than 1, the
average pay is above the
midpoint.
IF CR is less than 1, the
average pay is below the
midpoint.
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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?
The Uniformed Services Employment and
Reemployment Rights Act (USERRA)
Pay for Executives Based on equity theory, how does executive
compensation affect employees?
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Summary
Organizations make decisions to define a job
structure, or relative pay for different jobs within the
organization. Organizations also must establish pay
levels, or the average paid for the different jobs. These decisions are based on the organizations
goals, market data, legal requirements, and
principles of fairness.
Together, job structure and pay level establish a pay
structure policy.