Chapter 11 Pay Structure Decisions Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Developing Pay Levels Pay structure - relative pay of different jobs (job structure) & how much they are paid (pay level). Pay level - average pay, including wages, salaries & bonuses. Job structure - relative pay of jobs (range of pay often expressed by salary grades). Pay policies are attached to jobs, not individuals. 2 components of labor costs = average cost per employee plus staffing level. 11-2

Rate Ranges, Key & Non-key Jobs  Rate ranges - different employees in same job that may have different pay rates.  Key jobs - benchmark jobs that have relatively stable content and are common to many organizations so that market-pay survey data can be obtained.  Non-key jobs are unique to organizations and cannot be directly valued or compared through the use of market surveys. 11-3

Developing a Job Structure  Job structure - relative worth of various jobs in based on internal comparisons.  Job evaluation - administrative procedure used to measure internal job worth.  The evaluation process is composed of compensable factors, which are characteristics of jobs that an organization values and chooses to pay.  Job evaluators often apply a weighting scheme to account for differing importance of compensable factors to the organization. 11-4

Developing a Pay Structure 3 Pay-setting Approaches: 1. Market Survey Approach – emphasizes external comparisons. It bases pay on market surveys that cover as many key jobs as possible. 2.Pay Policy Line – mathematical expression that describes the relationship between a job’s pay and its job evaluation points. 3.Pay Grades – Grouping jobs of similar worth or content together for pay administration purposes.  Range spread – distance between minimum & maximum amounts in a pay grade. 11-5

Can the U.S. Labor Force Compete? 4 Deciding Factors Where to Locate Production Nonlabor considerations Productivity Unit Labor Costs & G.D.P. Skill levels 11-6

11-7 EEO - Trends  Fe male-to-male median earnings was 0.81, ratio of Black-to-White earnings was.78 and Hispanic-Latino- to-White earnings was.72.  Women increased to 47% of all employees in  Asian Americans earn 16% more than Whites.  Between 1960 and 2013, whites decreased from 90% to 81% of all employees. Comparable worth (or pay equity) is a public policy that advocates remedies for any undervaluation of women's jobs.

Wage Laws  Fair Labor Standards Act (FLSA) of 1938 established a minimum wage and overtime pay rate.  Minimum wage is $7.25 an hour. It is the lowest amount that employers are legally allowed to pay.  Exempt – those employees (executive, professional, administrative and outside sales) not covered by the FLSA and not eligible for overtime pay.  Davis-Bacon Act and Walsh-Healy Public Contracts Act require federal contractors to pay employees no less than area’s prevailing wages. 11-8

11-9 FLSA: Overtime The FLSA requires that employees be paid at a rate of one and a half times their hourly rate for each hour of overtime worked beyond 40 hours in a week. The hourly rate includes base wage plus other components such as bonuses and piece-rate payments. Overtime pay is required for any hours beyond 40 in a week that an employer “suffers or permits” the employee to perform, regardless of whether the work is done at the workplace or whether the employer explicitly asked or expected the employee to do it.

Summary  Equity theory - social comparisons influence how employees evaluate their pay.  Employees make external comparisons between their pay and pay they believe is received by employees in other organizations which may have consequences for employee attitudes and retention.  Employees make internal comparisons between what they receive and what they perceive others within the organization are paid. These comparisons may have consequences for internal movement, cooperation and attitudes (like organization commitment) and play an important role in the controversy over executive pay

Summary, continued  Pay benchmarking surveys and job evaluation are tools used in managing pay level and job structure components of the pay structure.  Pay surveys permit organizations to benchmark their labor costs.  Globalization is increasing the need to be competitive in labor costs and productivity.  Pay structure is moving to fewer pay levels to reduce labor costs and bureaucracy and shifting from paying employees for narrow jobs to giving broader 11-11