11-1 McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved. fundamentals of Human Resource Management 4 th edition by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright CHAPTER 11 Establishing a Pay Structure

11-2 Decisions About Pay Job Structure The relative pay for different jobs within the organization. Pay Level The average amount the organization pays for a particular job. Pay Structure The pay policy resulting from job structure and pay- level decisions.

11-3 Figure 11.1: Issues in Developing a Pay Structure

11-4 Legal Requirements for Pay Equal employment opportunityMinimum wagesPay for overtimePrevailing wages for federal contractors

11-5 Legal Requirements for Pay: Equal Employment Opportunity 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 such business-related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work.

11-6 Two employees who do the same job cannot be paid different wages because of gender, race, or age. It would be illegal to pay these two employees differently because one is male and the other is female. Only if there are differences in their experience, skills, seniority, or job performance are there legal reasons why their pay might be different.

11-7 Legal Requirements for Pay: Minimum Wage Minimum wage – the lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour. Labor Code of the Philippines– this establishes a minimum wage and requirements for overtime pay and child labor.

11-8 Legal Requirements for Pay: Overtime Pay Normal work hours should not exceed 8 hours a day. (Article 83 of the Labor Code of the Philippines) OVERTIME PAY refers to the additional compensation payable to employee for services or work rendered beyond the normal eight hours of work COVERAGE: This benefit applies to all except for exempt employees

11-9 Legal Requirements for Pay: Overtime Pay The overtime pay will vary if the overtime work is rendered on a rest day, regular day, or special day during the period between 10 pm and am of the following day. For ordinary day, an additional compensation equivalent to his regular hourly rate plus at least 25% thereof. For rest day, regular day and overtime an additional compensation equivalent to the rate for the first eight hours on a holiday or rest day plus at least 30% thereof.

11-10 Legal Requirements for Pay: Night Shift Differential NIGHT SHIFT DIFFERENTIAL: Article 86 of the Labor Code or PD 442 provides that every employee shall be paid a night shift differential of not less than 10% of his regular wage for each hour of work performed between 10 pm and 6 am of the following day.

11-11 Legal Requirements for Pay: Exempt Employees government employees; managerial employees and officers or members of the managerial staff; field personnel; members of the family of the employer who are dependent on him for support; domestic helpers and persons in the personal service of another; and employees who are paid by results, as determined by the Secretary of the Philippine Department of Labor and Employment (DOLE) in appropriate regulations.

11-12 Computation of Overtime Pay On Ordinary Day Regular Hourly Rate = Minimum Wage Rate divided by 8 hours Overtime Rate = Regular Hourly Rate plus 25% of Regular Hourly Rate

11-13 Computation of Overtime Pay On Rest Day and Special Day Hourly Rate = 130% of Regular Hourly Rate Overtime Rate = Hourly Rate on Rest Day plus 30% Hourly Rate on Rest Day

11-14 Computation of Overtime Pay On Rest Day which falls on a Special Day Hourly Rate = 150% of Regular Hourly Rate Overtime Rate = Hourly Rate plus 30% Hourly Rate

11-15 Computation of Overtime Pay On a Regular Holiday Hourly Rate = 200% of Regular Hourly Rate Overtime Rate = Hourly Rate plus 30% Hourly Rate

11-16 Computation of Overtime Pay On a Rest Day which falls on a Regular Holiday Hourly Rate = 260% of Regular Hourly Rate Overtime Rate = Hourly Rate plus 30% Hourly Rate

11-17 Legal Requirements for Pay: Child Labor Republic Act No IS AN ACT PROVIDING FOR THE ELIMINATION OF THE WORST FORMS OF CHILD LABOR AND AFFORDING STRONGER PROTECTION FOR THE WORKING CHILD, AMENDING FOR THIS PURPOSE REPUBLIC ACTNO. 7610, AS AMENDED, OTHERWISE KNOWN AS THE "SPECIAL PROTECTION OF CHILDREN AGAINST CHILD ABUSE, EXPLOITATION AND DISCRIMINATION ACT"

11-18 Economic Influences on Pay Product Markets The organization’s product market includes organizations that offer competing goods and services. Organizations compete on quality, service, and price. The cost of labor is a significant part of an organization’s 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 a particular job.

11-19 Pay Level: Deciding What to Pay Pay at the rate set by the marketPay at a rate above the marketPay at a rate below the market

11-20 Gathering Information About Market Pay Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors Pay surveys Trade and industry groups Professional groups Bureau of Labor Statistics (BLS) Society for Human Resource Management (SHRM) WorldatWork

11-21 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.

11-22 Figure 11.3: Opinions About Fairness – Pay Equity

11-23 Pay Equity (continued) If employees conclude that they are under-rewarded, they are likely to make up the difference in one of three ways: 1.They might put forth less effort (reducing their inputs). 2.They might find a way to increase their outcomes (e.g., stealing). 3.They might withdraw (by leaving the organization or refusing to cooperate). Employees’ beliefs about fairness also influence their willingness to accept transfers or promotions.

11-24 Test Your Knowledge Mariah found out that a friend of hers with a similar job in the same town makes significantly more money than she does. Which of the following is probably not the cause of this? a)Different cost-of-living b)The companies are in different product markets with different pay strategies c)Mariah is a poor performer d)Mariah’s job is non-exempt

11-25 Job Structure: Relative Value of Jobs Job Evaluation An administrative procedure for measuring the relative internal worth of the organization’s jobs. Compensable Factors The characteristics of a job that the organization values and chooses to pay for. – Experience – Education – Complexity – Working conditions – Responsibility

11-26 Table 11.1: Job Evaluation of Three Jobs with Three Compensable Factors

11-27 Job Structure: Defining Key Jobs Key Jobs – jobs that have relatively stable content and are common among many organizations. Organizations can make the process of creating the job structure and the pay structure more practical by defining key jobs. Research for creating the pay structure is limited to the key jobs that play a significant role in the organization.

11-28 Pay Structure: Putting It All Together Job Evaluation Job Structure Define Key Jobs Pay Survey Pay Policy Line Pay Rates Pay Grades Pay Ranges Pay Structure

11-29 Pay Rates Organization obtains pay survey data for its key jobs. Pay policy line is established. Pay rates for non-key jobs are then determined.

11-30 Pay Ranges 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. Red-circle rate – pay at a rate that falls above the pay range for the job. Green-circle rate – pay at a rate that falls below the pay range for the job.

11-31 Alternatives to Job-Based Pay Delayering Reducing the number of levels in the organization’s job structure. More assignments are combined into a single layer. These broader groupings are called broad bands. More emphasis on acquiring experience, rather than promotions. Skill-Based Pay Systems Pay structures that set pay according to the employees’ levels of skill or knowledge and what they are capable of doing. This is appropriate in organizations where changing technology requires employees to continually widen and deepen their knowledge.

11-32 Pay Structure and Actual Pay Pay structure represents the organization’s 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-ratio is the common way to do this.

11-33 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.