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Management and Organizational Studies
Management and Organizational Studies 4485F/G
Linda Eligh

Chapter 8 -Pay has a significant impact on employee attitudes and behaviours -Employee compensation is typically a significant organizational cost and thus requires close scrutiny -Pay can be broken down into two areas: pay structure and individual pay -Pay Structure: the relative pay of different jobs (job structure) that how much they are paid (pay level) -Job Structure: the relative pay of jobs within an organization -Pay Level: the average pay, including wages, salaries, and bonuses, of jobs in an organization -Standardizing the treatment of similar employees can help ease compensation administration -Policies attached to particular jobs rather than individual employees Equity Theory and Fairness -People evaluate fairness of their situation by comparing them to those of other people OP/IP , = OO/IO P = Person O = Outcomes (pay, working conditions) I = Inputs (effort) -External equity pay comparisons – what employees in other organizations are paid -Internal equity pay comparisons – what employees within the organization are paid in different jobs Pay Administrativ Compariso Consequences Structure e Tool n Type External Pay Market Pay External employee Level Surveys Equity movement, labour costs, employee attitudes Internal employee Job Job Internal movement, Structure Evaluations Equity cooperating among employees, employee attitudes Developing Pay Levels Market Pressures -Two challenges: product market competition and labour market competition -Product market competition – selling goods and services at a quantity and price that will bring sufficient return on their investment -Price is most important – influence on price is cost -Product market competition places upper bound on labour costs and compensation -More constrictive when labour costs are a larger share of total costs, when demand for the product is affected by changes in price (elastic demand), inelastic supply, and employee skills are specific -Labour cost components: average cost per employee, staffing level -Labour market competition – the amount an organization must pay to compete against other companies that hire similar employees -Places a lower bound on pay levels -More constrictive when attracting and retaining employees is hard and costs of recruiting replacements is high Employees as a Resource -Pay policies and programs are one of the most important HR tools for encouraging desired employee behaviours and discouraging undesired behaviours Pay Levels: Deciding What to Pay -Efficiency Wage Theory: wages influence worker productivity -Higher pay > higher costs -Need highly skilled employees -Difficulty monitoring employees performance Market Pay Surveys -Benchmarking: comparing organizations practices against competition Rate Ranges -Rate Ranges: different employees in the same job may be different pay rates -Benchmark Jobs: key jobs used in pay surveys that have relatively stable content and are common to may organizations -Non-Benchmark Jobs: jobs that are unique to organizations and that cannot be directly valued or compared through the use of market surveys Developing a Job Structure -Job Evaluation: administrative procedure used to measure internal job worth -Ranking (qualitative) -Classification/grade description (qualitative) -Point Method (quantitative) – each job is assigned a unique point value based on a detailed analysis of that jobs compensable factors -Only method that stands up to pay equity legislation -Compensable Factors: the characteristics of jobs that an organization values and chooses to pay for -All three approaches result in hierarchal job structure Ranking Method -Rank jobs from highest to lowest value to the organization until job structure is created -Alternation ranking -Paired comparison Classification (Grade Description) Method -Classify job into groups with other similar jobs that fit the same generalized description -Once a clear description of each class is established, a series of grade descriptions for each class is written to further differentiate the level of skill, experience, complexity, and responsibility required for jobs placed in each grade -Does not allow comparison of different jobs from diffe
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