Chapter 11
Learning 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 11
Learning 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
Labor 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.
• 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
Compensable Factors
• The characteristics of
• An administrative
a job that the
procedure for
organization values
measuring the relative
and chooses to pay
internal worth of the
for.
organization’s jobs.
–
–
–
–
–
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