Chapter 12

Communicating Fairness

- Employees' feelings about their pay relative to others' are based on what they perceive -Companies should assume that shared knowledge includes pay -The internet makes it easy to gather wage and salary data

Gathering Information About Market Pay

-Benchmarking -Multiple sources of data ----Pay surveys, Bureau of Labor Statistics (BLS) (National Compensation Survey), Society for Human Resource Management (SHRM), consulting groups

Equal Employment Opportunity

-Differences in pay must be based on employees' age, sex, race, or other protected status -NRLA allows "concerted activities for the purpose of collective bargaining or other mutual aid or protection" -Equal Pay Act of 1963 _Laws do not guarantee equal pay; there are so many legitimate factors that influence a person's earnings; -----Experience, skills, seniority, job performance -Comparable-worth policies -The Lilly Ledbetter Fair Act of 2009 ---Each paycheck is a new action of potential discrimination

Judging Fairness (Equity)

-Employees judge fairness in different ways ---external equity- fairness of one's pay relative to what employees in other organizations earn doing the same job ---Internal equity- fairness of one's pay relative to pay pf co-workers -Employee responses to the judgment of equity can have a great impact on the organization -Employees who perceive they are under-rewarded are likely to make up the difference in one of three way: 1. Putting forth less effort (reducing inputs) 2. Finding ways to increase outcomes (stealing) 3. Withdrawing by leaving or refusing to cooperate 4. Change referent point

Child Labor

-FLSA sharply restricts use of child labor --Children under 14 may not be employed --Children aged 14 and 15 may work only outside school hours, in nonhazardous jobs, and for limited time period --Children aged 16 and 17 may not be employed in hazardous jobs

Prevailing wages

-Federal contractors must pay employees at least equal to the prevailing wages in the area --Davis-Bacon Act of 1931 ----Construction contactors receiving more than $2k in federal funds --Walsh-Healy Public Contracts Act of 1936 ------All government contractors receving over $10k

Fair Labor Standards Act (FLSA)

-Federal law that establishes minimum wage and requirements for overtime pay and child labor

Minimum Wage

-Lowest amount employers may pay under federal or state law -States as an amount of pay per hour (Federal: 7.25, Maine: 12.75, Maine Tipped Employees: 6.38)

Overtime Pay

-Overtime is hours worked beyond 40 hours per week -Under FSLA, employers must pay 1.5 times an employee's usual rate for overtime -Exempt employees -Nonexempt employees

Exempt employees

-manager, outside salespeople, and other employees not covered by the FLSA requirement (Status determined by job duties and salary)

Pay differentials

Adjustments to a pay rate to reflect differences in working conditions or labor markets Differentials often offered in the U.S. by geographic location (Common approach is to move employees higher in pay structure to compensate for the higher cost of living)

Pay Level

Average amount the organization pays fpr a particular job

Which U.S. organization conducts an ongoing National Compensation Survey measuring wages, salaries, and benefits paid to the nation's employees? Society for Human Resource Management American Management Association Bureau of Labor Statistics AFL-CIO Bureau of Economic Analysis

BLS`

What is a disadvantage of broad bands? They increase the number of levels in the organization's job structure. They always result in pay decreases. They reduce managers' flexibility in making assignments. They reduce the opportunities for promoting employees. They discourage employees from gaining valuable experience through lateral career moves.

Broad bands reduce the opportunities for promoting employees, so organizations that eliminate layers in their job descriptions must find other ways to reward employees.

Nonexempt employees

Employees covered by FLSA requirements for overtime pay

In a product market, different organizations have different target customer markets. True False

False

In a two-tier wage system, employees doing the same job are paid two different rates, depending on their technical background and training. True False

False

Issues affecting an organization's pay structure do not affect its reputation in general. True False

False

Key jobs are those that are uncommon and have unstable content among many organizations, making them very difficult to evaluate using pay surveys. True False

False

Military pay often exceeds what service members would earn in their civilian jobs. True False

False

Pay grades allow precise matching of pay for individual jobs to market rates and an organization's job structure. True False

False

Research suggests that employees in the lower tier of the pay structure in a two-tier wage system are less satisfied than the top-tier employees. True False

False

The equity of executive pay affects a select few of an organization's employees. True False

False

The laws governing equal employment opportunity guarantee equal pay for men and women in an organization. True False

False

Under the Davis-Bacon Act of 1931 and the Walsh-Healy Public Contracts Act of 1936, employees of federal contractors must receive rates less than the prevailing wages in the area. True False

False

Which statement is true according to the Davis-Bacon Act of 1931 and the Walsh-Healy Public Contracts Act of 1936? The overtime rate applies to the hours worked beyond 45 in one week. Employers must pay a training wage to workers under the age of 15 for a period of up to 60 days. Federal contractors must pay their employees at rates at least equal to the prevailing wages in the area. Under these laws, individuals aged 18 and 19 may not be employed in hazardous occupations defined by the Department of Labor. These laws cover all companies doing business in the U.S.

Federal contractors must pay their employees at rates at least equal to the prevailing wages in the area.

What is a disadvantage of a pay structure that rewards employees for getting promotions? It discourages employees from gaining valuable experience through lateral career moves. It does not make adjustments to a pay rate to reflect differences in labor markets. It places the employer at an economic disadvantage relative to other employers that pay the market rate by raising the pay for some jobs. It rewards employees for acquiring skills but does not provide a way to ensure that employees can use their new skills. It does not focus on setting pay for groups of jobs.

It discourages employees from gaining valuable experience through lateral career moves.

What is an advantage of a two-tier wage system? It helps eliminate jobs without any legal hassles. It provides better standards for benchmarking. It helps move jobs out of the country. It helps provide more pay to new employees. It helps reduce labor costs without cutting employees' existing salaries.

It helps reduce labor costs without cutting employees' existing salaries.

What is a characteristic of delayering? It decreases the flexibility of managers in making assignments. It sets pay according to the employees' level of knowledge. It increases the opportunities for promoting employees. It encourages a climate of learning. It increases an organization's flexibility.

It increases an organization's flexibility.

What is a pay policy line? It reflects the pay structure in the market, which always matches rates in the organization. It shows the mathematical relationship between job evaluation points and pay rate. It is the rate of pay per unit produced. It requires market-pay-rate data on all jobs in the organization. It shows the mathematical relationship between the minimum pay and the maximum pay in an organization.

It shows the mathematical relationship between job evaluation points and pay rate.

What is a drawback of a minimum wage in terms of social policy? It tends to be lower than the earnings required for a full-time worker to rise above the poverty level. It is one and a half times the employee's usual hourly rate. It applies only to the hours worked beyond 40 in one week. It assumes people will take differences in pay into account when they choose a career. It places the employer at an economic disadvantage relative to employers that pay the living wage

It tends to be lower than the earnings required for a full-time worker to rise above the poverty level.

Decisions About Pay

Job Structure Pay Level Pay Structure

Labor Markets

Organizations must compete to obtain human resources in labor markets. Competing for labor establishes minimum an organization must pay to hire an employee for a particular job.

Which statement about FLSA requirements for overtime pay is accurate? Time worked includes hours spent on production or sales, but not on activities such as attending required classes, cleaning up the work site, and so on. The overtime rate is one and a half times the employee's hourly rate, excluding any bonuses or piece-rate payments. Overtime must be paid whether or not the employer specifically asked or expected the employee to work the extra hours. Everyone is eligible for overtime pay. Most workers paid on an hourly basis are exempt and therefore not subject to the laws governing overtime pay.

Overtime must be paid whether or not the employer specifically asked or expected the employee to work the extra hours.

Product v Labor Markets

P-Academic faculty have salaries constrained by the financial structure of universities, what students are willing to pay for education. L- In fields like accounting and nursing, faculty can gain employment in their field earning considerably more than they can in academia.

Pay Structure

Pay policy resulting from job structure and pay level decisions

Which statement about pay ranges is most accurate? Pay ranges generally are designed so they do not overlap. The market rate or the pay policy line generally serves as the midpoint of a range for the job. Pay ranges are widest for employees who are at lower levels in terms of their job evaluation points. Pay ranges are most common for blue-collar jobs and those covered by union contracts. The less overlap, the more flexibility in transferring employees among jobs.

Pay ranges are most common for white-collar jobs and for jobs that are not covered by union contracts. The range is widest for employees who are at higher levels in terms of their job evaluation points. That is because the performance of these higher-level employees will likely have more effect on the organization's performance, so the organization needs more latitude to reward them. A typical approach is to use the market rate or the pay policy line as the midpoint of a range for the job or pay grade. The market rate or the pay policy line generally serves as the midpoint of a range for the job.

Deciding what to pay

Ranges depend on the competitive environment Market rate versus paying above market rate to acquire top talent Pay policies are one of most important HR tools to encourage desired behaviors and discourage undesired behaviors

Salary

Rate of pay per week, month, or year worked

Pay rates

Rates of key jobs can be based on market research Non-key jobs often have no survey data available; professional must base rate off job evaluation by plotting on graph Pay policy line in graph shows relationship between job evaluation points and pay rates

Hourly Wage

Rates pay per each hour worked

Job Structure

Relative pay for different jobs within organization

Which statement about skill-based pay is most accurate? Skill-based pay provides a way to ensure that employees can use their new skills. Skill-based pay ensures that the employer pays the employee for learning skills that benefit the employer. Skill-based pay does not require records related to skills, training, and knowledge acquired. Gathering market data about skill-based pay is easy. Skill-based pay does not necessarily provide an alternative to the bureaucracy and paperwork of traditional pay structures.

Skill-based pay does not necessarily provide an alternative to the bureaucracy and paperwork of traditional pay structures, because it requires records related to skills, training, and knowledge acquired. Gathering market data about skill-based pay is difficult because most wage and salary surveys are job-based.

more on delayering

Some organizations have found greater flexibility through delayering, or reducing the number of levels in the organization's job structure. By combining more assignments into a single layer, organizations give managers more flexibility in making assignments and awarding pay increases

Under the FLSA, which statement is true of child labor? Children aged 14 and 15 may not be employed in any work associated with interstate commerce. Children aged 18 and 19 may not be employed in hazardous occupations defined by the Department of Labor. All the states have laws requiring working papers or work permits for minors. Children aged 18 and 19 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods. The FLSA's restrictions on the use of child labor apply to children younger than 18.

The FLSA's restrictions on the use of child labor apply to children younger than 18.

More on FLSA

The FLSA's restrictions on the use of child labor apply to children younger than 18. Under the FLSA, children aged 16 and 17 may not be employed in hazardous occupations defined by the Department of Labor. Children aged 14 and 15 may work only outside school hours in jobs defined as nonhazardous and for limited time periods. A child under age 14 may not be employed in any work associated with interstate commerce, except work performed in a nonhazardous job for a business entirely owned by the child's parent or guardian.

Organizations use pay surveys to benchmark compensation. True False

True

According to the FLSA, which individual is most likely a nonexempt employee? an hourly paid production line employee the CEO an HR manager the director of marketing a senior administrative employee

an hourly paid production line employee

ccording to __________ theory, people measure outcomes such as pay in terms of their inputs. economic expectancy progressive justice equity retributive justice

equity

Compensable factors

experience, education, complexity, working conditions, responsibility

Compa-ratio can range from 0 to 100 percent. measures the degree to which new skills learned are consistent with the increases in pay. uses data from market-pay surveys. is defined as the ratio of the average pay for the grade divided by the minimum pay for the grade. is defined as the ratio of average pay to the midpoint of the pay range.

is defined as the ratio of average pay to the midpoint of the pay range.

Which elements establish an organization's pay structure? legal requirements and job descriptions job structure and pay level cost control and equity individual salaries of its employees pay ranges and pay differentials

job structure and pay level

Assuming an organization wants to motivate employees through promotions, and assuming enough opportunities for promotions are available, the organization would want to limit the overlap from one pay range to the next. increase the overlap from one level to the next. reduce its compa-ratio to less than 1. implement a broadband pay structure. use a fixed interval promotion policy.

limit the overlap from one pay range to the next.

Job evaluation

measures relative internal worth of organization's jobs Committee identifies each job's compensable factors --characteristics organization values and is willing to pay for Job rated for each factor

Economic Influences on Pay

product markets labor markets

Overlapping pay __________ give the organization more flexibility in transferring employees among jobs, because transfers need not always involve a change in pay. ranks rates policies ranges differentials

ranges

Piecework Rate

rate of pay per each unit produced

Pay ranges

set of possible pay rates defned by a minimum, maximum, and mmidpoint of pay for employees holding a particular job or a job within a particular pay grade Flexibility helps organization balance conflicting information from job evaluations and market surveys Usually pay ranges overlap somewhat

Pay Grades

sets of jobs having similar worth or content, grouped together to establish rates of pay It May not match the market rate (this is problematic when dissimilar jobs are grouped together)

The pay ratio reporting policy, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that companies report the ratio of their average worker's pay to that of their competitor's average pay. minimum wage. exempt employees. other workers in the same industry. the CEO.

the CEO

Compa-Ratio

the ratio of average pay to midpoint of pay range. If average equals midpoint, CR is 1. If CR is greater than 1, average pay is above midpoint. IF CR is less than 1, average pay is below midpoint.

With respect to pay, which description best defines an organization's job structure? the relative pay for different jobs within the organization the characteristics of jobs that the organization values and chooses to pay for the average amount an organization pays for a particular job the minimum amount that employers must pay under federal and state law regular pay, overtime pay, and bonuses

the relative pay for different jobs within the organization

Assuming that the pay structure is well planned to support the organization's goals, the compa-ratios should be close to 1. True False

true

Pay Ratio Reporting

•Must report ratio of CEO pay to pay of median employee •Dodd-Frank Wall Street Reform •Consumer Protection Act of 2010 •Intended to increase transparency and make social responsibility a more vital part of pay policies

product markets

•Organizations that offer similar goods and services •Organizations compete on quality, service, and price •Cost of labor a significant part of organization's costs