Management 4220 Chapter 8

Compa-ratio meanings for pay structures

Compa-ratio meanings 1 = market match rate < 1 = market lag rate > 1 = market lead rate Divide pay rates by midpoint

5 steps of pay structure

1. Decide how many pay structures to construct 2. Determine a market pay line 3. Define pay grades 4. Calculate pay ranges 5. Evaluate the results

Three types of pay structures

1. Traditional 2. Broadband 3. Market-Based

Considerations for merit pay

Considerations - Communicate link between pay and performance - Use effective appraisal methods - Establish increase amounts and types - Settle on base pay level

Green-circle rates

Situations in which an employee's pay is below the minimum of the range. Can be the result of someone not meeting the minimum requirements for the job

Traditional pay structure

Traditional salary structures are divided into numerous pay grades. Salary increases are relatively small jumps between pay grades. Employers can use traditional structures to prevent employees from capping out at the maximum salary too quickly.

merit pay

a system of linking pay increases to ratings on performance appraisals

Pay compression

occurs when individuals with substantially different levels of experience, or performance abilities are paid wages or salaries that are relatively equal. Caused by the scarcity of qualified candidates and a lack of increase in pay range minimum and maximum wage

Red-circle rates

payment rates above the maximum of the pay range Results from a failure to raise pay range maximums

pay grades

sets of jobs having similar worth or content, grouped together to establish rates of pay. Human resource (HR) professionals typically group jobs into pay grades based on similar compensable factors and value.