11-1

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
fundamentals of
Human Resource Management 4
th
edition
by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 11
Establishing a Pay Structure
11-2
Figure 11.1:
Issues in Developing a Pay Structure
11-3
Legal Requirements for Pay:
Equal Employment Opportunity
Employers must not base differences in pay on
an employees age, sex, race, or other
protected status.
Any differences in pay must be tied to such
business-related considerations as job
responsibilities or performance.
The goal is for employers to provide equal pay
for equal work.
11-4
Economic Influences on Pay
Product Markets
The organizations 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
organizations 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.
11-5
Gathering Information About Market Pay
Benchmarking a
procedure in which an
organization compares
its own practices
against those of
successful competitors
Pay surveys
Trade and industry
groups
Professional groups
Bureau of Labor
Statistics (BLS)
Society for Human
Resource Management
(SHRM)
WorldatWork
11-6
Employee Judgments About Pay Fairness
Employees compare their pay and
contributions against three yardsticks:
1. What they think employees in other
organizations earn for doing the same job.
2. What they think other employees holding
different jobs within the organization earn for
doing work at the same or different levels.
3. What they think other employees in the
organization earn for doing the same job as
theirs.
11-7
Job Structure: Relative Value of Jobs
Job Evaluation
An administrative
procedure for
measuring the relative
internal worth of the
organizations jobs.
Compensable Factors
The characteristics of a
job that the
organization values and
chooses to pay for.
Experience
Education
Complexity
Working conditions
Responsibility
11-8
Pay Ranges
Pay ranges a set of
possible pay rates
defined by a minimum,
maximum, and
midpoint of pay for
employees holding a
particular job or a job
within a particular pay
grade.
Red-circle rate pay at
a rate that falls above
the pay range for the
job.
Green-circle rate pay
at a rate that falls below
the pay range for the
job.
11-9
Pay Differentials
Pay differential adjustment to a pay rate to
reflect differences in working conditions or
labor markets.
Many businesses in the United States provide
pay differentials based on geographic location.
The most common approach is to move an
employee higher in the pay structure to
compensate for higher living costs.
11-10
Alternatives to Job-Based Pay
Delayering
Reducing the number of
levels in the organizations
job structure.
More assignments are
combined into a single layer.
These broader groupings
are called broad bands.
More emphasis on
acquiring experience, rather
than promotions.
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.
11-11
Pay Structure and Actual Pay
Pay structure represents the organizations
policy.
However, what the organization actually does
may be different.
The HR department should compare actual
pay to the pay structure, making sure that
policies and practices match.
Compa-ratio is the common way to do this.
11-12
Figure 11.7: Finding a Compa-Ratio
Compa-Ratio (CR) the
ratio of average pay to the
midpoint of the pay range.
If the average equals the
midpoint, CR is 1.
If CR is greater than 1, the
average pay is above the
midpoint.
IF CR is less than 1, the
average pay is below the
midpoint.
11-13
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?
11-14
Summary
Organizations make decisions to define a job
structure, or relative pay for different jobs within the
organization. Organizations also must establish pay
levels, or the average paid for the different jobs.
These decisions are based on the organizations
goals, market data, legal requirements, and
principles of fairness.
Together, job structure and pay level establish a pay
structure policy.