MGMT Pay structure decisions

Labor-market competition

One of the challenges in pay decisions - amount an organization use pay to compete against other organizations that hire similar employees. Unless higher labor costs are offset by higher worker productivity or desirable product features that allow a higher product price, it will be difficult to sustain relatively high costs in a competitive product market

Worth of a job

One of the internal factors affecting the pay mix; establishing the internal wage relationship among jobs and skill levels

salary/bonuses, stock options, stock grants

What are the three components of executive compensation?

rates range

different employees in same job that may have different pay ranges

market survey approach

emphasizes external comparisons. It bases pay on market surveys that cover as many key jobs as possible

Strategic compensation

links the compensation to the mission, objectives, philosophies, and culture of the organization. Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard. Seeks to motivate employees through compensation

Employer's view of pay structure

pay is critical in attaining strategic goals. Pay impacts employee attitudes and behaviors. Employee compensation is significant organizational cost

Deciding what to pay

this is discretionary and is based on a broad range. The organization has to decide whether to pay at, below, or above the market average.

Overtime pay

this is required for any hours beyond 40 in a week that an employer "suffers of permits" the employee to perform, regardless of whether the work is done at the workplace or whether the employee explicitly asked or expected the employee to do it.

Non-key jobs

unique to organizations and cannot be directly valued or compared through the use of market surveys

Conflicts with market pay surveys and job evaluation

Internal data drives up labor costs and creates product-market problems. If external market data are emphasized and a job is paid lower internally, comparisons that employees make internally would result in dissatisfaction. An organization should consider its strategy, what jobs and/or functions will be critical for success and market-competitive pressures. Geographic location is a big consideration

Product-market competition

One of the challenges in pay decisions - sell goods and services at a quantity and price that will bring a return on investment

Cost of Living

One of the external factors affecting the pay mix. Local housing ad environmental conditions can cause wide variations in the cost of living for employees. Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power. Consumer Price Index is used (a bureau of labor statistics measure of the average change in prices over time in a fixed "market basket" of goods and services)

Labor Market conditions

One of the external factors affecting the pay mix; availability and quality of potential employees is affected by economic conditions, government regulations ad policies, and the presence of unions

Employer's ability-to-pay

One of the internal factors affecting the pay mix; having the resources and profits to pay employees

Employee's relative worth

One of the internal factors affecting the pay mix; rewarding individual employee performance

Pay level

One way to develop pay levels - average pay, including wages, salaries and bonuses

Pay structure

One way to develop pay levels - relative pay of different jobs (job structure) and how much they are paid (pay level)

Employee's view of pay structure

Policies regarding wages, salaries and other earnings affect eerie overall income and standard of living. Both level of pay and fairness compared with others' pay are important

delayering and banding, skills based, competency based

What are the three responses to problems with job-based pay structures? The idea behind these responses is that you want employees to learn more skills and become more flexible in the jobs they perform and you should pay them to do it

Stock grants

a component of executive compensation. Stock given to employe as compensation/part of compensation

executive pay

accounts for a small proportion of labor costs. Executives have a disproportionate ability to influence organizational performance. Issues include not only how much executives are paid but how they are paid

Pay grades

grouping jobs of similar worth or content together for pay administration purposes. (range spread - distance between minimum and maximum amounts in a pay grade). Disadvantages: some jobs may be underpaid and others overpaid

Executive pay criticisms

some executives are very highly paid. US executives are the highest paid in the world. Ratio of executive pay to average worker pay creates a "trust gap" - workers do not trust executives' intentions and resent their pay

Job-based pay structure problems

reinforces top-down decision making as well as status differentials. Bureaucracy, time and cost required to generate and update job descriptions can become a barrier to change. Job-based structure may not reward desired behaviors, where the knowledge, skills and abilities needed yesterday may not be helpful today and tomorrow. System encourages promotion-seeking behavior, but discourages lateral movement

Employees as a resource

A philosophy that considers employees to be an investment that will yield valuable returns. Controlling costs through noncompetitive pay can result in low employee productivity and quality. Pay policies and programs are important HR tools for encouraging desired employee behaviors and discouraging undesired behaviors

Market pay surveys

Ideally they would be the key labor market and product market competitors. Only sample of jobs is typically used for these - jobs should be representative in terms of level, functions area and product market. Knowing what others are paying is only part of the story you should also know what they are getting for what they are paying (return on investment). Three considerations before using this: 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 rates of pay weighted and combined?

External factors affecting the pay mix

Includes labor market conditions, area wage rates, cost of living, and collective bargaining

Area wage rates

One of the external factors affecting the pay mix. A firm's formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs

Collective bargaining

One of the external factors affecting the pay mix. Escalator clauses in labor agreements provide for quarterly upward cost-of-living (COLA) wage adjustments for inflation to protect employees' purchasing power. Unions bargain for real wage increases that raise the standard of living for their members. Real wages are increased larger than rises in the consumer price index; that is, the real earning power of wages

Employer's compensation strategy

One of the internal factors affecting the pay mix; establishes the internal wage relationship among jobs and skill levels. Sets organization compensation policy to lead, lag, or match competitors pay. Rewards employe performance. Guides administrative decisions concerning elements of the pay system such as overtime premiums, payment periods, and short-term or long-term incentives

Job structure

One way to develop pay level - relative pay of jobs (range of pay often expressed by salary grades)

pay structure, pay level, job structure, pay policies attached to jobs, not individuals

What are four ways to develop pay levels

market survey approach, pay policy line, pay grades

What are the three pay-seeing approaches?

product-market competition and labor-market competition

What are the two competitive market challenges in pay decisions?

Average cost per employee and staffing level

What are the two components of labor costs?

internal factors and external factors

What are the two factors affecting the pay mix

stock options

a component of executive compensation. The right to buy company stock at discounted price (not obligatory). CEO pay varies with performance of stock market

The Point Manual

a handbook that contains a description of the compensable factors and the degrees to which these factors amy exist within the jobs.

skills-based response

a response to problems with job-based pay structures; building your structure based on individual characteristics such as knowledge and skills-pay based on the skills employees acquire and are capable of using.

Competency based response

a response to problems with job-based pay structures; typically refers to a plan that covers exempt employees.

job evaluation

administrative procedure used to measure internal job worth. A committee is usually used to generate rating. This process is composed on compensable factors, which are characteristics of jobs that an organization values and chooses to pay. this often applies a weighting scheme to account for differing importance of compensable factors to the organizaiton

Comparable Worth (equal pay act of 1963)

also called pay equity - a public policy that advocates remedies for any undervaluation of women's jobs. Based on the idea that individuals should obtain equal pay, not just for jobs of equal content, but for jobs of equal value or worth. Courts have consistently ruled that using the going market rates of pay is acceptable defense in comparable worth litigation suits. Use Market Data to help avoid discrimination

key jobs

benchmark jobs that have relatively stable content and are common to many organizations so that market-pay survey data can be obtained

total compensation

cash compensation (salary, merits, bonuses, stock options ad other incentives) and benefits (health insurance, unemployment compensation)

broadbanding

collapses many traditional salary grades into a few wide salary bands.

3 components of compensation

direct (wages, salaries, incentives, bonuses, and commissions), indirect (many benefits supplied by employers) and non0financial compensation (employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours). The allocation of these three components send a message to employees about what management believes is important

Fair Labor Standards Act (FLSA) of 1938

established a minimum wage and overtime pay rate. Hourly work - paid on an hourly basis. Salary work - compensation is composed on the basis of weekly, biweekly, or monthly pay periods. Those employees (executive, professional, administrative, and outside sales) not covered by this and not eligible for overtime pay are exempt from this. Minimum wage is $7.25 an hour. It is the lowest hourly amount that employers are legally allowed to pay. State law can specify higher minimum wages. requires that employees be paid at a rate of one and a half times their hourly rate for each hour of overtime worked beyond 40 hours in a week. The hourly rate includes base wage plus other components such as bonuses and piece-rate payments.

Internal factors affecting the pay mix

includes the employers compensation strategy, worth of a job, employee's relative worth and employer's ability-to pay

Pay policy line

mathematical express that describes the relationship between a job's pay and it job evaluation points. Does not use market rates for key jobs - pay is directly linked to the number of job evaluation points

Benchmarking

procedure by which an organization compares its own practices against the competition.

job structure

relative worth of various jobs based on internal comparisons. composed of compensatatiable factors and weighing scheme based on the importance of each compensatiable factor to the organization (ex: job complexity, working characteristics, required education, required experience and responsibility)

Point system

this may be used in job evaluation; a quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it. Permits jobs to be evaluated quantitatively on the basis of factors of elements - compensable factors - that constitute the job

Efficiency wage theory

when organizations have technologies and structures the depend on highly skilled employees - ex: organizations that emphasize centralized decision making may need higher caliber employees.