Chapter 11
Pay Structure Decisions
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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.
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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.
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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.
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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.
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Can the U.S. Labor Force Compete?
4 Deciding Factors Where to Locate Production
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EEO - Trends
Female-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
2013.
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.
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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.
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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.
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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.
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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
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