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Module 8

The document discusses pay structure decisions and their consequences. It covers market surveys and job evaluations used to determine pay levels, equity theory which compares employee input and outcomes, different views employees have on pay, using market data to develop pay policy lines and pay grades, challenges with rigid job-based structures, and new approaches like skill-based pay and banding. It also briefly discusses comparative productivity, labor costs, and CEO pay between countries.

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GayeGabriel
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© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
89 views

Module 8

The document discusses pay structure decisions and their consequences. It covers market surveys and job evaluations used to determine pay levels, equity theory which compares employee input and outcomes, different views employees have on pay, using market data to develop pay policy lines and pay grades, challenges with rigid job-based structures, and new approaches like skill-based pay and banding. It also briefly discusses comparative productivity, labor costs, and CEO pay between countries.

Uploaded by

GayeGabriel
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Module 8

Pay Structure Decisions


Pay Structure and Consequences
Pay Level Job Structure

Administrative Market surveys Job evaluation


Tool

Focus of External Internal


Comparison

Consequence - external moves: - internal moves:


attraction / retention promotion, transfer
of employees - cooperation
- labor costs among employees
- employee attitudes - employee attitudes
Equity Theory
Pay, benefits,
opportunities, etc.

the same,
more or less
OUTCOME OUTCOME
INPUTS
<=> INPUTS
?
effort, ability,
experience etc.

A person evaluates fairness by comparing their ratio with others.


Three Employee Views of the Pay
Decision

1 Pay Level- Same job in Different organizations


2 Pay Structure - Different jobs in Same organization
3 Individual Pay Differences - Different people in Same job
Market Pressures in Developing
Pay Levels
Deciding What to Pay ?
 Product-market competition
 upper bound on labor cost
• staffing level
• average cost per employee
 Labor-market competition
 lower bound on pay levels
Market Pay Surveys - Benchmarking

Factors to consider
1 Identify key labor- and product-market competition
2 Identify key jobs v. non-key jobs
3 Weight and combine pay rates appropriately
4 Track appropriate ratios over time
 revenues per employee
 revenues per labor cost
 work force quality (e.g. education levels)
Example of a Three-Factor Job Evaluation
System

Compensable Factors
Total
Job Title Experience Education Complexity Points

Computer operator 40 30 40 110

Computer programmer 40 50 65 155

Systems analyst 65 60 85 210


Approaches to Developing a Pay
Structure

• Market survey data


– external comparisons
• Pay policy line
– combines internal & external
• Pay grade
Developing a Pay Policy Line
8
7

6
monthly
salary 5
($000)
4
PAY 3

2 Line of Best Fit :


1 using Market-Survey data
in Table 14.4

40 80 120 160 200 240 280 320


Job Evaluation Points
Developing a Pay Policy Line
8 Predicted Salary = $7,128

6
monthly
salary 5 Predicted Salary = $6,486
($000)
4
PAY 3

1 Job Evaluation Points = 315

40 80 120 160 200 240 280 320


Job Evaluation Points
Pay Grade Structure
8

6
monthly
salary 5
(000)
4
PAY 3

100 150 200 250 300 350


Job Evaluation Points
Process Issues
• Participation
– Use task forces for suggestions
• Communication
– Employees need to understand system
– Need to keep managers aware of changes
– Managers need to explain system changes
Current Challenges

Problems with Job Based Pay Structure


• too rigid, reduces flexibility
• reinforces top-down
• retards changes
• does not reward behavior change
• discourages lateral moves
New Approaches

• Delayering and Banding


• Skill (knowledge) - based pay
– increases flexibility
– firm needs to use available skills
Can the U.S. Labor Force Compete?

• Labor costs are unstable over time


• Quality & productivity of labor varies
• Non-labor cost factors also important in
locating facilities
– market proximity
– response time
Comparative Productivity and Unit Labor Costs:
Unites States, Germany, and Japan
Productivity (value added per labor hour)

100 100 $200

83 153
76
133

50 100 $100

Legend:
U.S.
Germany
Japan
Chief Executive Officer Pay in
Selected Countries
Multiple of CEO to
Manufacturing Employee
Total Remuneration
30
24

20
16

11 9
10

United France Germany Japan


States

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