COMMERCE 2BC3 Chapter Notes - Chapter 8: Regression Analysis, Product Market, Flat Organization
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CHAPTER 8 PAY STRUCTURE DECISIONS
Pay is considered a sign of status and success
Pay Structure - The relative pay of different jobs and how much they are paid
Pay Level - The average pay, including wages, salaries, and bonuses of jobs in a organization
Job Structure - The relative pay of jobs within an organization
Why is the focus on jobs in developing a pay structure?
- Although employees are unique and require some degree of individualized treatment , standardizing
the treatment of similar employees can help make compensation administration and decision making
more manageable and more equitable.
- Policies are often attached to particular jobs rather than tailored entirely to individual employees
Equity Theory And Fairness
Equity Theory - suggests that people evaluate the fairness of their situations by comparing them with
those of other people
- Implications for managing employee compensation
Employees evaluate their pay by comparing it with what others get paid, and their work
attitudes and behaviours are influenced by such comparisons
Employee perceptions determine their evaluation
External Equity - pay comparison that focuses on what employees in other organizations are paid for
doing the same general job
Internal Equity - pay comparison that focuses on what employees within the same organization, but in
different jobs, are paid
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Developing Pay Levels
Product Market Competitions
- challenge to sell goods and services at a quantity and price that will bring a return on investment
Labour Market Competition
-amount an organization must pay to compete against other organizations that hire similar employees.
Employees as a Resource
- Organizations consider employees as a cost and as a resource in which the organization has invested
and from whit it expects valuable returns.
- Pay policies and programs are one of the most important human resources tools for encouraging
desired employee behaviours and discouraging undesired behaviours.
Pay Levels: Deciding What to Pay
- The advantage of paying above the market average is the ability to attract and retain the top talent
available which can translate into a highly effective and productive workforce. Disadvantage is the
- Efficiency Wage Theory - A theory stating that wages influence worker productivity
- Employees who are paid more than they would be paid elsewhere will be reluctant to shirk
Market Pay Surveys
- Benchmarking - comparing and organizations practices against those of the competition
Issues to determine before using pay surveys :
1. Which employers should be included in the survey?
2. Which jobs are included in the survey?
3. If multiple surveys are used, how are all of the rates of pay weighted and combined?
Product market comparisons that focus on labour costs are likely to deserve greater weight when:
1. Labour costs represent a large share of total costs
2. Product demand is elastic
3. The supply of labour is inelastic
4. Employee skills are specific to the product market
Labour market comparisons may be more important when:
1. Attracting and retaining qualified employees is difficult
2. The costs of recruiting replacements is high
Rate Ranges - Different employees in the same job may have different pay rates
Benchmark Jobs - Jobs used in the pay surveys that have relatively stable content and are common to
Nonbenchmark Jobs - Jobs that are unique to organizations and that cannot be directly valued or
compared through the use of market surveys.
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