Chapter 11Learning Objectives

1. Identify the kinds of decisions involved in establishing a pay structure.

2. Summarize legal requirements for pay policies.

3. Discuss how economic forces influence decisions about pay.

4. Describe how employees evaluate the fairness of a pay structure.

Chapter 11Learning Objectives (continued)

5. Explain how organizations design pay structures related to jobs.

6. Describe alternatives to job-based pay.

7. Summarize how to ensure that pay is actually in line with the job structure.

8. Discuss issues related to paying employees serving in the military and paying executives.

Organizational Pay Considerations

Decisions About Pay

Issues in Developing a Pay Structure

Legal Requirements for Pay

Minimum Wage

• At the federal level, the Fair Labor Standards Act establishes a minimum wage of:– $7.25 per hour as of July 2009

• The FLSA also permits a lower “training wage”• Overtime is 1.5 times the rate after 40 hours• Child Labor provisions apply to children under

18 years of age

Legal Requirements for Pay:Prevailing Wages

• Two federal laws govern pay policies of federal contractors:– Davis-Bacon Act of 1931– Walsh-Healy Public Contracts Act of 1936

• Under these laws, federal contractors must pay their employees at rates at least equal to the prevailing wages in the area.

Prevailing Wage determinations

Economic Influences on Pay

Product Markets• The organization’s

product market includes organizations that offer competing goods and services.

• Organizations compete on quality, service, and price.

• The cost of labor is a significant part of an organization’s costs.

Labor Markets• Organizations must

compete to obtain human resources in labor markets.

• Competing for labor establishes the minimum an organization must pay to hire an employee for a particular job.

Job Structure: Relative Value of Jobs

Job Evaluation

• An administrative procedure for measuring the relative internal worth of the organization’s jobs.

Compensable Factors• The characteristics of

a job that the organization values and chooses to pay for.– Experience– Education– Complexity– Working conditions– Responsibility

Job Evaluation Methods

Pay Structure: Putting It All Together

Pay Policy Line

Pay Grades and Ranges

Pay Range Factors

• Red Circle Rates

• Green Circle Rates

• Pay differentials

Alternatives to Job-Based Pay

Delayering

• Reducing the number of levels in the organization’s job structure.

• More assignments are combined into a single layer.

• These broader groupings are called broad bands.

Skill-Based Pay Systems• Pay structures that set

pay according to the employees’ levels of skill or knowledge and what they are capable of doing.

• This is appropriate in organizations where changing technology requires employees to continually widen and deepen their knowledge.

Current Issues in Pay

• Pay During Military Duty– How should companies handle employees

who are called for active duty in the military for extended time periods?

– The Uniformed Services Employment and Reemployment Rights Act (USERRA)

• Pay for Executives– Based on equity theory, how does executive

compensation affect employees?

Average CEO Pay in S&P 500 Companies

Bonus