HRM gaining a competitive advantage chapter 011 3rd ed

Part IV

Compensation of
Human Resources
Standard Slide Sample

Chapter 11
Pay Structure Decisions

Chapter 12
Recognizing Employee Contributions with Pay
Chapter 13
Employee Benefits

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11
Chapter

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Pay Structure
Decisions
Objectives

• List the major decision areas and concepts in
employee compensation management.
• Describe the major administrative tools used to

manage employee compensation.
• Explain the importance of competitive labor-market
and product-market forces in compensation
decisions.
• Discuss the significance of process issues such as
communication in compensation management.
• Describe new developments in the design of pay
structure.
• Explain the reasons for the controversy over
executive pay.
• Describe the regulatory framework foe employee
compensation.
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11-2

Administrative
Tool
Focus of
Comparison
Consequence

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Pay Structure and
Consequences
Pay Level

Job Structure

Market surveys

Job evaluation

External

Internal

- external moves:
attraction / retention
of employees
- labor costs
- employee attitudes

- internal moves:
promotion, transfer
- cooperation
among employees
- employee attitudes

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Equity Theory

11-3

Pay, benefits,
opportunities, etc.

OUTCOME
INPUTS

the same,
more or less

<=>

?

OUTCOME
INPUTS

effort, ability,
experience etc.

A person evaluates fairness by comparing their ratio with
others.
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Three Employee Views of the
Pay Decision

11-4

11

22
33

Pay LevelLevel- Same
Same job
job in
in Different
Different organizations
organizations
Pay
Pay Structure
Structure -- Different
Different jobs
jobs in
in Same
Same organization
organization
Pay
Individual Pay
Pay Differences
Differences -- Different
Different people
people in
in
Individual
Same job
job
Same

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11-5

Market Pressures in Developing
Pay Levels
Deciding What to Pay ?
Product-market competition
competition
Product-market
upper bound
bound on
on labor
labor cost
cost
 upper
staffing level
level
staffing
average cost
cost per
per employee
employee
average
Labor-market competition
competition
 Labor-market
lower bound

bound on
on pay
pay levels
levels
 lower


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Market Pay Surveys - Benchmarking

11-6

Factors to consider
11

22
33
44

Identify key
key laborlabor- and
and product-market
product-market
Identify
competition
competition

Identify key
key jobs
jobs v.
v. non-key
non-key jobs
jobs
Identify
Weight and
and combine
combine pay
pay rates
rates appropriately
appropriately
Weight
Track appropriate
appropriate ratios
ratios over
over time
time
Track
revenues per
per employee
employee
 revenues
revenues per
per labor
labor cost
cost
 revenues
work force

force quality
quality (e.g.
(e.g. education
education levels)
levels)
 work

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11-7

Example of a Three-Factor Job
Evaluation System
Compensable Factors
Total

Job Title
Complexity

Experience

Education

Points

Computer operator

40

30

40

110

Computer programmer

40

50

65

155

Systems analyst

65

60

85

210

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11-8

Approaches to Developing a Pay
Structure
Market survey
survey data
data
Market
external comparisons
comparisons
 external
Pay policy
policy line
line
 Pay
combines internal
internal &
& external
external
 combines
Pay grade
grade
 Pay


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Developing a Pay Policy Line

11-9

8
7
6
monthly
salary
5
($000)
4

PAY

3
2

Line of Best Fit :
using Market-Survey data
in Table 14.4

1

40

80

120

160

200

240

280

Job Evaluation Points
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32


Developing a Pay Policy Line

11-10

Predicted Salary = $7,128

8
7
6
monthly
salary

5
($000)
4

PAY

Predicted Salary = $6,486

3
2
1

Job Evaluation Points = 315

40

80

120

160

200

240

280

Job Evaluation Points
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32


Pay Grade Structure

11-11

8
7
6
monthly
salary
5
(000)
4

PAY

3
2
1

100
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150

200

250

300

Job Evaluation Points

350

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Process Issues

11-12

Participation
Participation
Use task
task forces
forces for
for suggestions
suggestions
Use
Communication
 Communication
Employees need
need to
to understand

understand
Employees
system
system
Need to
to keep
keep managers
managers aware
aware of
of
Need
changes
changes
Managers need
need to
to explain
explain system
system
Managers
changes
changes


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Current Challenges

11-13

Problems with
with Job
Job Based
Based Pay
Pay
Problems
Structure
Structure
too rigid,
rigid, reduces
reduces flexibility
flexibility
 too
reinforces top-down
top-down
 reinforces
retards changes
changes
 retards
does not
not reward
reward behavior
behavior change
change
 does
discourages lateral
lateral moves
moves

 discourages

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New Approaches

11-14

Delayering and
and Banding
Banding
Delayering
Skill (knowledge)
(knowledge) -- based
based pay
pay
 Skill
increases flexibility
flexibility
 increases
firm needs
needs to
to use
use available
available skills
skills
 firm



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Can the U.S. Labor Force Compete?

11-15

Labor costs
costs are
are unstable
unstable over
over time
time
Labor
Quality &
& productivity
productivity of
of labor
labor varies
varies
 Quality
Non-labor cost
cost factors
factors also
also
 Non-labor

important in
in locating
locating facilities
facilities
important
market proximity
proximity
market
response time
time
response


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11-16

Comparative Productivity and Unit Labor
Costs: Unites States, Germany, and Japan
Productivity (value added per labor hour)

100

100

$200
83

153

76

133
50

100

$100

Legend:
U.S.
Germany
Japan
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Chief Executive Officer Pay in
Selected Countries

11-17

Multiple of CEO to
Manufacturing Employee
Total Remuneration
30

24
20

16
11

10

United
States
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France

9

Germany

Japan

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