Transcript From the employee`s point of view

Human Resource Management
Gaining a Competitive Advantage
Chapter 11
Pay Structure Decisions
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, All Rights Reserved.
1-1
Introduction
From the
employer’s point
of view:
• Pay is critical in
attaining strategic
goals.
• Pay has a major
impact on employee
attitudes and
behaviors.
• Employee
compensation is
typically a significant
organizational cost.
From the
employee’s point
of view:
• Policies having to do
with wages, salaries,
and other earnings
affect their overall
income and thus their
standard of living.
• Both level of pay and
fairness compared with
others’ pay are
important.
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Equity Fairness
Two types of employee social
comparisons of pay are especially
relevant in making pay-level and job
structure decisions:
Pay Structure
Decision Area
Administrative
Tool
Focus of
Employee Pay
Comparisons
Consequences of
Equity Perceptions
Pay Level
Market pay surveys
External equity
Job Structure
Job evaluation
Internal equity
External employee
movement, labor
costs, employee
attitudes
Internal employee
movement, cooperation,
employee attitudes
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Developing Pay Levels - Market
Pressures
• Two important competitive market
challenges in deciding what to pay its
employees:
– Product-market competition – the
challenge to sell goods and services at a
quantity and price that will bring a return
on investment.
– Labor-market competition – the amount
an organization must pay to compete
against other organizations that hire
similar employees.
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Product Market v. Labor Market
Comparisons
Product-market
comparisons will
be more important
when:
• Labor costs represent
a large share of total
costs.
• Product demand is
elastic.
• The supply of labor is
inelastic.
• Employee skills are
specific to the product
market.
Labor-market
comparisons will
be more important
when:
• Attracting and
retaining employees
is difficult.
• The costs of
recruiting are high.
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Rate Ranges
• Rate ranges refer to different
employees in the same job that may
have different pay rates.
• Key jobs are benchmark jobs that
have relatively stable content and are
common to many organizations so
that market-pay survey data can be
obtained.
• Nonkey jobs are unique to
organizations and cannot be directly
valued or compared through the use
of market surveys.
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Developing a Job Structure
• A job structure refers to the relative worth of
various jobs in the organization, based on
internal comparisons.
• Job evaluation is an administrative procedure
that measures a job's worth to the organization.
– The evaluation process is composed of
compensable factors, which are the
characteristics of jobs that an organization
values and chooses to pay for.
– Job evaluators often apply a weighting scheme
to account for the differing importance of the
compensable factors to the organization.
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The Importance of Process
Participation
Communication
• Participation should
involve both those who
will manage the process
and those who will be
affected by it.
• Participation includes
recommending,
designing, and
communicating a pay
program.
• Typically, pay-level
decisions are only made
by top management.
• The effect of
communication is likely to
be an impact on
employees' perceptions
of equity.
• Managers must be
prepared to explain to
employees why the pay
structure is designed the
way it is and to judge
whether changes to the
structure should be
made.
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Current Challenges
• Job-based pay structures can create the
following problems:
– They encourage bureaucracy.
– They reinforce top-down decision making as well
as status differentials.
– The bureaucracy, time, and cost required to
generate and update job descriptions can
become a barrier to change.
– The job-based structure may not reward desired
behaviors, where the knowledge, skills, and
abilities needed yesterday may not be helpful
today and tomorrow.
– The system encourages promotion-seeking
behavior, but discourages lateral movement.
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Current Challenges
• Responses to problems with job-based
pay structures include the following:
– Delayering is reducing the number of job
levels. This provides more flexibility in job
assignments and assigning merit increases.
– A second response to job-based pay
structure problems has been to move away
from linking pay to jobs and toward building
structures on skill, knowledge, and
competency.
• Skill-based pay typically pays individuals for
the skills they are capable of using rather
than for the job they are performing at a point
in time.
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CEO Remuneration in U.S.
Dollars
11-11
Executive Compensation
• Two factors contributed to pay scales that
now have CEOs earning more than 300x
pay of average American worker
– Advent of giant stock option grants, form of
compensation made more attractive by 1993
change to tax law that maintained corporate
tax deductions for executive pay over $1m if
pay was tied to performance
– Widespread practice of linking pay to levels at
companies of similar size
• Has effect to raise average that everyone will use
as baseline
» Source: New York Times, 4/5/09
11-12
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Comparable Worth
• Comparable worth (or pay equity) is a
public policy that advocates remedies for
any under evaluation 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.
– The courts have consistently ruled that using
the going market rates of pay is an
acceptable defense in comparable worth
litigation suits.
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Assertiveness Gap?
• Study of MBAs entering job market, interviewing for position
paying $61K
– 71% of male candidates believed they were better than other
candidates, told hiring managers so, asked for more money
– 70% of female candidates believed themselves to be equal to other
candidates, willing to accept offered salary
• Men and women have different attitudes about competing and
winning
– In research study involving computer maze, men performed 50%
better when competing against others in group rather than when
paid piece-rate
– In research study involving runners, boys ran faster if they ran
against other boys, even faster if they ran against girls; girls ran at
same speed either running alone or w/ competitor
• Social risks: “Consistent assertiveness in a woman rankles
people”
• Men may be more comfortable with selling themselves than
women
» Source: Washington Post, 7/8/03
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“New Rules on Overtime Are
Established”
• Expanded range in which lower-income workers are
guaranteed overtime pay, and put ceiling on overtime for
higher-income workers
– Workers earning $23,660 or less guaranteed overtime
– $100,000 ceiling for most overtime protections based on job
duties
• Easier for Er to deny overtime to some professionals
– Executive, administrative, learned or creative professional
– Exempted chefs, lawyers, teachers, and accountants from
getting overtime
– Also exempt: “team leaders” (defined to include any person who
leads a group of employees on major projects)
• Rules “only” 15,000 words long (~540 pages), cf. 31,000
words of existing rules replaced
» Source: Wall Street Journal, 4/21/04; Washington Post, 4/21/04
11-16
“Big Retailers Face Overtime Suits
As Bosses Do More ‘Hourly’ Work”
• Retailers such as Wal-Mart, RadioShack, Dollar General facing
lawsuits accusing them of using low-level managers to do work
of non-managers in order to avoid paying overtime
– Suits claim little difference between job duties of hourly ees and
asst mngrs, esp nighttime asst mngrs (“glorified stockers”)
– RadioShack mngrs required to work at least 52 hrs/wk
• Under FLSA, mngrs may be entitled to overtime if more than
40% of their time is not spent supervising or if jobs don’t include
decision making (such as authority to hire/fire)
• Wal-Mart tries to hold labor costs to 8% of sales, cf. 9-10% on
average at other large-store retailers
– Alleged that to stay within budget, Wal-Mart district mngrs have
encouraged store mngrs to send hourly ees home before shift is
over, then asst mngrs (who are required to work at least 48 hrs/wk)
may stay on job for as much as 75 hrs/wk to cover
– Portion of store mngr compensation is annual bonus pegged to
store profit
» Source: Wall Street Journal, 5/26/04
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FACULTY SALARY DATA:
2008-09 (tuition/fees 2008-09, in-state)
ALL
NOTRE DAME
99.0
PURDUE
86.9
IU-BLOOMINGTON 86.3
VALPARAISO
66.7
UE
63.9
IU-SOUTHEAST 61.9
BALL STATE
58.9
INDIANA STATE 58.8
USI
54.6
FULL ASSOCASST CTGRYTUITION/FEES
131.1 86.9 76.2 I
36.8
111.3 77.2 69.2 I
7.8
114.0 77.8 68.4 I
8.2
95.0 61.3 55.3 IIA
26.9
82.9 62.9 52.5 IIA
25.8
77.8 63.7 56.0 IIA
5.6
79.2 63.3 50.2 I
7.5
76.2 59.4 51.9 I
7.1
77.0 60.2 53.3 IIA
5.2
Source: US News College Report
www.colleges.usnews.rankingsandreviews.com/college
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USI AVERAGE FACULTY SALARIES,
2008-09 (CONTINUING FACULTY 7/1/08)
Full Associate Assistant
Educ & HS
79.8
66.8
52.8
Liberal Arts
67.5
59.4
49.0
Nurs & HP
70.8
71.5
59.2
Sci & Eng
73.0
66.7
57.7
Bus
96.9*
81.3
75.6
Acct & Blaw
Econ & Fin
Mktg & Bus.Comm
Mngt,MIS,& ACS
Deans
107.4
85.0
112.7*
94.6
131.5
73.2
83.3
70.1
89.1
***
81.8
***
67.9
Budgeted
Incoming
85.0
80.5(2)
93.9
84.8(3)
Note: median salary for HR Director (non-autonomous), adjusted to
Evansville CPI, 10/09: $112,636 (req 7-10 years exp) (salary.com)
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AVERAGE FACULTY SALARIES, SELECTED FIELDS
FOUR-YEAR INSTITUTIONS, 2007-08
BUSINESS, MANAGEMENT, MARKETING
ENGINEERING
COMPUTER AND INFORMATION SCIENCES
HEALTH PROFESSIONS
SOCIAL SCIENCES
BIOLOGICAL AND BIOMEDICAL SCIENCES
PHYSICAL SCIENCES
MATH, STATS
FOREIGN LANGUAGES
PSYCHOLOGY
EDUCATION
PHILOSOPHY
COMMUNICATIONS, JOURNALISM
LIBERAL ARTS, HUMANITIES
HISTORY
VISUAL AND PERFORMING ARTS
ENGLISH
89.8
87.6
81.3
72.9
68.8
68.5
68.3
66.4
65.4
65.3
65.0
64.8
64.6
64.4
63.3
62.1
62.1
ALL
69.5
Source: March 14,2008 Issue of The Chronicle of Higher Education
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