MOS 3342 Ch 3

Internal Pay Structure Between Organizations

An internal pay structure is defined by (1) the number o^ levels of work, (2) the pay differentials between the levels, and (3) the criteria used to determine those levels and differentials.

Criteria: Content and Value

Content refers to the work performed in a job and how it gets done (tasks, behaviours, knowledge required, and so on). Value refers to the worth of the work: its relative contribution to the organization objectives, The universal structure dictates 8 levels for industrial workers, 16 levels for technical and engineering workers, and 26 levels for government employees.

Consequences of Structures

Efficiency Research shows that an aligned pay structure can lead to better organization performance Fairness Writers have long agreed that departures from an acceptable wage structure will result in higher turnover, grievances, and diminished motivation.^^ One group argues that if fair (i.e., sizable) differentials between jobs are not paid, individuals may harbour ill will toward the employer, resist change, change employment if possible, become depressed, or "lack that zest and enthusiasm which makes for high efficiency and personal satisfaction in work )thers, including labour unions, argue for small differentials, in the belief that more egalitarian structures support team cooperation, high commitment to the organization, and improved performance. Legal Compliance

Employee Acceptance:

Employees judge the fairness of their pay through comparisons with the compensation paid oth¬ ers for work related in some fashion to their own. Two aspects of fairness are important: the procedures for determining the pay structure, called procedural justice, and the results of those procedures—the pay structure itself—called distribu¬ tive justice. '. dr. The ror*£i*^ #consistently applied to all employees, (2) employees participate in the process (although recent research suggests an exception when wages are very low),^' (3) appeals procedures are included, and (4) the data used are accurate.

What Factors Shape Internal Structures

External Factors: Economic pressures, Government policies, laws, regulation, Stakeholders, Cultures and customs Organization Factors: strategy, tech, human capital, HR policy, employee acceptance, cost implications Internal Structure: levels, differentials, criteria

Institutional Theory: Copy Others

Institutional theory predicts that very few firms are "first movers." Instead they copy innovative practices after innovators have learned how to make the practices work. The copiers have iitrie concern for alignment and even less for innovative pay practices.

Job- and Person-Based Structures

Job-based structure looks at work content—tasks, behaviours, responsibilities. A person-based structure shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used on the particular job the employee is doing.

Tournament Theory: Motivation and Performance

The greater the differential between an employees present salary and his or her boss's salary, the harder the employee (and everyone else) will work.

Marginal Productivity Theory

The theory that unless an employee can produce something of value from his/her job equal to the value received in wages, it will not be worthwhile for an employer to hire that employee

Some Organizational Outcomes of Internally Aligned Structure

Undertake training Increase experience Reduce turnover Facilitate career progression Facilitate performance Reduce pay-related grievances Reduce pay-related work stoppages

Egalitarian versus Hierarchical

egalitarian structures have fewer levels and smaller differentials between adjacent levels and between the highest- and the lowest-paid workers. Hierarchical structures are consistent with a belief in the motivational effects of frequent promotion. Hierarchies value the differences in individual employee skills, responsibilities, and contnbutions to the organization. . An egalitarian structure implies a belief that more equal treatment will improve employee satisfaction, support cooperation, and therefore improve workers' performance.^' High performers quit less under more hierarchical systems when pay is based on performance rather than seniority and when people have knowledge of the structure. More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge is required

workflow

process by which goods and services are delivered to the customer

Internal Labour Markets

rules and procedures that rules and procedures that different jobs within a single organization and that allocate employees to those different jobs Internal labour markets refer to the rules and procedures that (1) determine the pay for the different jobs within a ngle organization and (2) allocate employees to those different jobs.

Tailored versus Loosely Coupled

tailored structure pay structure for well-defined jobs with relatively small dif¬ ferences in pay loosely coupled structure pay structure for jobs that are flexible, adaptable, and changing

pay structure

the array of pay rates for dif¬ ferent work or skills within a single organization; the num¬ ber of levels, the differentials in pay between the levels, and the criteria used to deterne these differences create the structure

Human Capital

the education, experience, knowledge, abilities, and skills that people possess

internal alignment (internal equity)

the relationships between the jobs within a single organization form a job structure that should support the organization's strategy, support the workflow, and motivate behaviour toward organization objectives.