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Commerce (1,690)
Chapter 8

CHAPTER 8 PAY STRUCTURE DECISIONS.docx

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Department
Commerce
Course
COMMERCE 2BC3
Professor
Frances L Tuer
Semester
Winter

Description
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 Developing Pay Levels Market Pressures 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 added cost. - 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 many organizations Nonbenchmark Jobs - Jobs that are unique to organizations and that cannot be directly valued or compared through the use of market surveys. Compensable Factors - The characteristics of jobs that an organization values and chooses to pay for Job Evaluation - An administrative procedure used to measure internal job worth. 1. Ranking Method - Simplest and cheapest of all job evaluation approaches - Consists of asking a committee of job evaluators to examine jobs and rank from highest to lowest value - Alternation Ranking - Evaluators begin by examining all jobs in the organization, and rank based on they know about the jobs. --> create a hierarchical job structure based on what the evaluators think - Paired Comparison - Each individual job is methodically compared to each other in a one by one matrix to determine which is more valuable. Jobs are ranked based on outcomes of many specific comparisons 2. Classification (Grade Description Method - Uses generic organization wide descriptions to classify jobs into groups with other similar jobs that fit the same descriptions - Grades are assigned to each class to differentiate the level of skill, experience, complexity - The advantage of such systems is efficient and cost effective - The disadvantage is that if descriptions are too broad, there is room for error and conflict 3. The Point Method - Based on breaking an individual job down into the key characteristics of jobs that an organization values. --> compensable factors -- derived from organization job analysis as well as the weight derived from each compensable factor --> use benchmark jobs when deciding on compensable factors - Weights are used to score each compensable factors. 2 ways they can be generated: - Priori weights - factors are weighted using expert judgements about their importance - Weights can be derived empirically based on how important each factor seems Developing Pay Structure 3 Pay Setting Approaches: 1. Market Survey Data - The greatest emphasis is on external comparisons. It bases pay on market surveys that cover as many key jobs as possible. - Pay Policy Line - Mathematical expression that describes the relationship between a job's pay and its job evaluation points --> generated using regression analysis 2. Adjusted Pay Policy Line - uses the Market Policy Line to derive pay rates for both benchmark and non- benchmark jobs. - Compensation manager draws a line above/below the market pay line to ensure that the adjusted line puts the company's pay level intentions into practice 3. Pa
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