MGT 340 Ch 12-13

Chapter 12 Pay Structures

Identify the kinds of decisions involved in establishing a pay structure:

• a job structure establishes relative pay for different jobs within the organization

• organizations establish relative pay for different functions and different levels of responsibility for each function

• They must also establish pay levels, or the average paid for the different jobs.

• together, job structure and pay level establish a pay structure policy

Summarize legal requirements for pay policies

• EEO standards require employers provide equal pay for equal work, regardless of protected classes (age, sex, race, disability, etc).

• Under the FLSA, employer must pay at least the minimum wage established by law. Some state and local governments have established higher minimum wages.

• FLSA also requires overtime pay, at one and a half times the employees regular pay rate, including hours worked beyond 40 per week. Managers, professionals, and outside salespersons are exempt from overtime pay

• must meet FLSA requirements regarding child labor

• fed. contractors must meet requiremnts to pay at least the prevailing wage in the area where their employees work.

How economic forces influence decisions about pay?

• to remain competitive, employers must meet the demands of product and labor markets

• product markets seek to buy at the lowest price, so organizations must limit their costs as much as possible. In this way, product markets place an upper limit on the pay an employer can afford to offer.

• Labor markets consist of workers who want to earn as much as possible. To attract and keep workers, employers must pay at least the going rate in their labor markets.

• organizations make decisions about whether to pay at, above, or below the pay rate set by these market forces.

• Paying above the market rate may make the organization less competitive in product markets but give it an advantage in labor markets. The org. only benefits if it can attract the best candidates and provide the systems that motivate and enable them to do their best work.

• organizations that pay below the market rate need creative practices for recruiting and training workers so that they can find and keep enough qualified people.

How do employees evaluate the fairness of a pay structure?

• according to equity theory, employees think tof their pay relative to their inputs, such as training. experience. and effort. To decide whether their pay is equitable, they compare their outcome (pay)/input ratio with other people’s outcome/input ratios

• employees make these comparisons with p[eople doing the same or different jobs in the same org..

• if employees conclude that their outcome/input ratio is less than the comparison person’s, they conclude that their pay is unfair and may engage in behaviors to create a situation they think is fair.

• pay transparency helps employees and job candidates determine the fairness of an orgs pay structure

How do organizations design pay structures related to jobs?

• typically begin with a job evaluation to measure relative worth. A job eval. committee identifies each job’s compensable factors and rates each job.

• the committee can research market pay levels for key jobs and then identify appropriate rates of pay for other jobs based on their number of points relative to the key jobs.

• the org can combine jobs into several groups called pay grades

• for each pay grade or job, the org typically establishes a pay range, usig the market rate or payb policy to adjust pay levels

• differences in working conditions or labor markets sometimes call for the use of pay differentials to adjust pay levels

Describe alternatives to job-based pay

• to obtain more flexibility, orgs may use delayering. they reduce the levels in the organizations job structure, creating broad bands of jobs with a pay range for each.

• orgs may use skill based pay. they reward employees according to their knowledeg and skills by establishing skill-based pay systems. these strucutres that set pay according to the employees/ level of knowledge and capabilities

• skill based pay encourages employees to be more flexible and adapt to changing technology.

How to ensure that pay is actually in line with the pay structure?

• HR dep. should compare actual pay with pay structure often to see that policies = practices

• common way to do this is the compa-ratio for each job or pay grade. the compa-ratio is the ratio of average pay to the midpoint of the pay range.

• assuming the pay structure supports the organization’s goals, the compa-ratios should be close to 1.

• when compa-ratios are more or less than 1, the HR dep. should work with managers to identify whether to adjust the pay structure or the orgs. pay practices

Discuss issues related to paying employees serving in the military and paying executives

• the Uniformed Services Employment and Reemployment Rights Act requires employers to make jobs available to any of their employees who leave to fulfill military duties for up to five years.

• while these employees are performing their military service, many are earning far less. to demonstrate their commitment to these employees and to earn the publics goodwill, companies pay the differenc between their militayr and civilian earnings, even though this policy is costly

• executive pay has drawn public scrutiny because top exec pay is much higher than the average workers pay

• the great difference is an issue in terms of equity theory. Chief exec officiers have an extremely large impact on the orgs performance, but critics complain that when performance falters, exec pay does not decline as fast as the orgs profits or stock price

• top execs help set the tone or culture, and employees at all levels are affected by the behavior of the people at the top. therefore, employees opinoiopns about the equity of exec pay can have a large effect on the orgs peformance

Chapter 13 Recognizing employee contributuons with pay

Discuss the connect btwn incentive pay and employee perfomance

• incentive pay is pay tied to individual perfomance, profits, or other measures of success

• orgs select forms of incentive pay to energize, direct, or control employees behavior.

• it is influential bc the amt paid is linked to predefined behaviors or outcomes

• to be effective, incentive should encourage the kinds of behaviors that are needed most, and employees must believe they have the ability to meet the performance standards. Employees must value the rewards, have the resources they need to meet the standards, and believe the pay plan is fair.

How orgs recognize individual performance?

• orgs may recognize individual performance thru incentives as piecework rates, standard hour plans, merit pay, sales commission, and bonuses for meeting individual performance objectives

• piecework rates pay employees according to the amount they produce

• standard hour plans pay workers extra for work done in less than a preset “standard time”

• merit pay links increases in wages or salaries to ratings on performance appraisals

• bonuses are similar to merit pay because they are paid for meeting individual goals, but they are not rolled into base pay, and they usually are based on achieving a specific output rather than subjective performance ratings

• a sales commissions is incentive pay calculated as a percentage of sales closed by a salespersons

Identify ways to recognize group performance

• common group incentives include gainsharing, bonuses, and team awards

• gainsharing programs measure increases in productivity and distribute a portion of each gain to employees.

• Group bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output.

• team awards are more likely to use a broad range of performance measures, such as cost savings, successful completion of a project, or meeting a deadline

Explain how orgs link pay to their overall performance

• incentives for meeting organizational objectives includes profit sharing and stock ownership

• Profit sharing plans pay workers a percentage of the orgs profits, these payments do not become part os employees salary base

• stock ownership incentives may take the form of stock options or employee stock ownership plans

• a stock option is the right to buy a certain number of shares at a specified price

• the employee benefits by exercising the option at a price lower than the market price, so the employee benefits when the company stock price rises.

• an employee stock ownership plan (ESOP) is an arrangement in which the org distributes shares of it’s stock to employees by placing the stock in a trust managed on the employees’ behalf. When the employees leave the organization, they may sell their shares of the stock

Describe how organizations combine incentive plans in a balanced scorecard

• balanced scorecard is a combo of performance measures directed toward the company’s long and short term goals and used as the basis for awarding incentive pay

• Typically, it includes financial goals to satisfy stockholders, quality and price related goals for customer satisfaction, efficiency goals for improved operations, and goals related to acquiring skills and knowledge for the future.

• the balanced scorecard also helps employees to understand and care about the organizations goals

Summarize processes that can contribute to the success of incentive programs

• communication and participation in decisions contribute to employees feeling that the org incentive pay plans are fair

• employee participation in pay related decisions can be part of a general move toward employee empowerment. employees may put their own interests first in developing the plan, but they have insight into the behavior that contribute to org goals

• communicating w employ. is important bc it shows that the pay plan is fair and helps them understand what is expected of them. Communication is especially important when the org is changing its pay plan

Discuss issues related to perfomance-baed pay for execs

• bc execs have strong influence over org performance, incentive pay for them receives special attention

• exec pay usually combines long-term and short term incentives, by motivating execs, these incentives can affect the orgs performance a lot

• the size of incentives should motivate but also meet standards of equity

• perform measures should encourage behavior that is in orgs best interest, including ethical behavior