Compensation Chapter#3

EE are willing to accept a lower wage if they believe it's fair

1) they are consistently applied to all employees 2) employees participate in the process 3) appeals procedures are included 4) the data used is accurate

Pay structure is defined as

1. The number of levels of work 2. the pay differentials between the levels 3. The criteria used to determine those levels and differentials.

Criteria: Content and Value

Content referes to the work in a job (tasks, behaviours etc) Value refers to the work of the work (the contribution to goals) Structure based on content ranks jobs on the basis of skill Structures based on value focus on the contribution of those skills

Loosely Coupled

Coupled (jobs flexible, adaptable, changing

Organization Strategy

Different business strategies may require different pay structures to support them. The baic believe of a strategic perspective is that pay structures aligned with the organization strategy may come obstacles in the organizations sucess.

Employee Acceptance: A Key Factor

EE judge fairness based on pay. They compare their job in the same internal job structure and the pay in the external market.

Intuitional Theory: Copy Others

ERs copy others "best practices" examples are outsourcing and competency-based pay systems adopted whether or not these practices are fit the organization or they add value. The first adaptors have the advantage and the copier have little concern for alignment and even less for innovative pay practices.

Internal Structure

Efficency Fairness Legal Compliance

Egalitarian

Egalitarian structures have fewer levels and smaller differentials between the highest and lowest paid workers.

Tournament Theory: Motivation and Performance

Golfers play better in tournaments in which the prize differentials are sizable. Raising the prize by even 100,000 improved players scores, and the close they got to the top the higher their scores. The higher an employer wage is from their supervisor the harder they'll work. If they work hard then they "win" the higher wage. Did not cause resentment. This only works when it relays to an employee personal skills, solo activities. A study of baseball teams found that players with a more egalitarian pay structure did well than those of hierarchical nature

STRATEGIC CHOICES IN DESIGNING INTERNAL STRUCTURES

Greater fit is more likely to lead to success. Miss aligned structures become obstacles, What does it mean to fit the pay structure? 1) how tailored to organization design and worklow to make the structure 2) how to distribute pay throughout the levels in the structure

Pay Structure *class

IA, the key concept whatever you do with IA, it should be consistant with and support the work flow, the way work happens in the organization. Store cllerk would report to a SM, obviously not the same salary. Kind of idea or work flow. The structure could be diffeent, the motivating factors are different. Back to strategy, the idea here is, ar ethere implications and never of levels,

Motivates Behaviour

Internal job and pay structures influence employee's behaviour by providing pay increases for promotions, more challenging work, and greater responsibly, as emplyess move up in the job structure. The ability for an employee to see the linkages between what he or she does, is often called ling of sight. Employee should understand the linkages there job does with the organization.

Job and person based structures

Job-based looks at work content Person-Based looks at the skills, knowledge and competencies and employee possesses

Equity Theory: Fairness

Judge pay on others (internal equity) and form other jobs (external equity) those who are are higher up perceive the pay scale as equal. And those in the lower paid jobs felt only if they were in a higher paying district. Employees may either support egalitarian or hierarchical structures depenindg on the comparions and the accuracy of information

Egalitarian chart

LEVELS Fewer DIFFERENTIALS Small CRITERIA Person or job FIT Loosely CouplesSUPPORTS Team FAIRNESS CRITERION Equal Treat BEHAVIOUR REWARDED Cooperatio

Hierarchical chart

LEVELS Many DIFFERENTIALS Large CRITERIA Person or Job FIT Tailored SUPPORTS Individual Performers FAIRNESS CRITERION Performance BEHAVIOUR REWARDED Opportunities for Promotion

Government policies

Minimum wages, that efffects pay levels at the bottom Pay equity Regulating executive pay maximums Not limiting maximums, companys must report it

External Stakeholders

Most unions seek smaller pay difference bween jobs, as well as seniority based pay. They are an external force looking to alter pay structures. Executive pay has also been under scrutnity as some E.P is received when strategic outcomes are not being met

Levels

One feature of any pay structure is its hierarchical nature. Because pay strctures typically relect the flow of wok in the organization, some are more hierachial with multiple levels and others are compressed with few levels.

Pay Structures Change

Prior to 9/11 airport screenersw ere paid minimum wage with no benefits. Today, wages are comparable to police and fire protection jobs. EE in other airport jos had to revise their comparisons to the security job. The pay differences from before can become accepted and equitable and customary

Organization and Work Design

Technology used product good and services and influence the organizational design. A lot of people who work in organization are not employees of these organization (IT Spupplier, Staffin Agencies) Pay structures for these people are based o the internal structure of their own employer. Delayering: entire levels of work have dissaeparsd, levels of manage can be cut in reponse to other factors.

Human Captial:

The education, expierence, knowledge, abilities and skills, that people posses. The stronger the link between these skills and the organization strategic objective, the more pay these skills will command.

Cultures and Customs

There is a shared minset in societ that can effect the size of pay differentials. Pay factors are shaped by todays cultural standards.

What'r eyou theories say?

Tournement theory says that if you increase in your difference in pay between your top levels, and meployees will work harder to get to the top, the prize getting there. Came from golfer scores and they found that the bigger difference in 1,2,3rd golfs scores improved worker harder to get to first place. Is the result transferable to the workplace? Are employees going to work fader to get the top position, because Is the work indiv driving, if so then might work. If it's team they might undercut eachother they all might get the top prize What about employees who don't want incrase in position? Answer is it depends hehe "A cross-functional team responsible for a distinct geographic area provides a relationship-building approach to selling process. Such a response team would have been beyond the resources of just a single sales representative. To help these team marck developed a different pay compensation structure. "

Government Policies, Laws, and Regulations

You cannot do pay systems that discriminate on the basis of protected ground. Pay equity requires "equal pay for equal work" The most obvious place to affect an internal structure is at the mimum and maximums, but legislation also aims at the differentials Male Police officers / Female nurses

Two-tier pay structure

ew hires in a job are paid less then existing employees and will never get the level of existing employees. I'm going to value added. Fairness - It's eally through up in the air, in the U.S. bigger, air traffic control. Unions have opposed the two-tier paid system.

Distributive Justice

fairness of a decision outcome

Procedure Justice:

fairness of a process by which a decision is reached

Egalitarian

few levels; small differentials)

Hierarchical

many levels; large differentials

Differentials

pay differences between job levels If organization has a compensation budget for a set amount, there are a number of ways to do so. They can divide it to everyone in the organization (but the majority are not egalitarian) pay varies among employees,

Loosely coupled structure

pay structure for jobs that are flexible, adaptable and changing

Tailored Structure:

pay structure for well-defined job with relatively small differences in pay If you go to McDonalds in any country in the world, they'll all feel very similar. Their pay structures are as well, Companies like 3M is constantly, changing, agile employees, lots of innovation

5X the wages perfect*

philsopher king

Workflow:

process by which goods and service are deliver to the customer

Hierarchical structure

re consistent with a belief in the motivational effects of frequent promotions, Hierarchies value the different in individuals employee skills, responsibility and contributions They can also be described as "delayered" or compresed, layers are removed so that all employees at all level become responsible for a broader range of tasks. A egalitarian structure believes that more equal treatment will improve EE satisfaction.

Internal alignment

refers to the pay relationships among jobs / skill / competencies within a single organization.

Internal Labour Markets:

rules and procesure that determine the pay for different jobs within a single organization and that allocate employees to those different jobs 1) Determine the pay for the different jobs within a single organization 2) Allocate employees to different jobs

Pay structures

the array of pay rates for different jobs within an organization - are defined by levels, differentials, and the criteria for determining these. Acceptance by employees of the pay differentials between jobs is a key test of an equitable pay structure. The goals of the entire compensation system must be kept in mind when designing internal pay structures.

Pay Structure

the array of pay rates for different work or skills within a single organization; the number of levels, the differentials in pay between the levels, and the criteria used to determine these differences create the structure. The engineering company decided that six levels of engineering work would support the companys strategy of researching, designing and developing technology.

Internal Alignment:

the relationships between the jobs within a single organization

Internal Alignment/Equity

the relationships between the jobs/skills/ competencies within a single organization the relationships form a job structure that: supports organization strategy supports the workflow motivates behaviour of employees

Marginal Productive 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 Pay differences among the job levels reflects differences in values assosciated with different jobs. One job is paid more or less than another because of differences in relative productivity of the job and or in how muh a sondumer values the output.

Tailored

well-defined jobs; small differentials

Guidance from Evidence

• More hierarchical sttructues are related to greater performance when the workflow depends on individual contribuors • High performers quit less under more hierarchical systems when pay is base don performance rather than senority when they have knowledge of the pay structure • The impact of any internal structure on organization performance is affected by the other dimensions of the pay model: pay levels (competitveness) , employee performance(contributions), and employee knowdlge of pay structure (management)