Pay Structure Decisions

Flashcards covering key concepts in employee compensation and pay structure decisions.

Pay from Employer's View

Impacts employee attitudes and behaviors, motivational tool, significant organizational cost, critical part of business strategy.

Pay from Employee's View

Affects overall income and standard of living, level of pay and fairness are important, a sign of status and success.

Pay structure

The relative pay of different jobs (job structure) and how much they are paid (pay level).

Job structure

The relative pay of jobs in an organization.

Equity Theory

People evaluate the fairness of their situations by comparing them with those of other people.

External equity

Focus on what employees in other organizations are paid for doing the same job, using market pay surveys.

Internal equity

Focus on what employees within the same organization are paid, using job evaluations.

Product market competition

Organizations must sell goods and services at a quantity and price that brings a sufficient return on investment, placing an upper bound on labor costs.

Labor market competition

Reflects number of workers available relative to number of jobs available, influencing pay levels.

Efficiency wage theory

Employees paid more than they would receive elsewhere will put forth effort to retain good jobs.

Benchmarking

Comparing an organization’s practices against those of the competition.

Rate ranges (pay grades)

Permit company to recognize differences in employee performance, seniority, and training in setting individual pay.

Key jobs

Benchmark jobs, stable content, common to many organizations.

Nonkey jobs

Unique to organizations, cannot be directly valued or compared through market surveys.

Job evaluation

Composed of compensable factors and a weighting scheme.

Pay policy line

Combines external and internal comparisons to derive pay rates for both key and non-key jobs.

Pay grades

Grouping jobs into pay classes, each job within a grade has the same rate range.

Grade compa-ratio

Actual average pay for grade/pay midpoint for grade.

Participation

Employee participation takes many forms.

Delayering and banding

Reduces opportunities for promotion.

Competency-based pay

Compensate employees to learn more skills and become more flexible in their jobs.

Skill-based pay

Increases workforce flexibility and facilitates decentralization of decision making.