fundamentals of
Human Resource Management 4th
edition
by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright
CHAPTER 11
Establishing a Pay Structure
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.
11-1
Decisions About Pay
Job Structure
Pay Level
• The relative
pay for
different
jobs within
the
organization.
• The average
amount the
organization
pays for a
particular
job.
Pay Structure
• The pay
policy
resulting
from job
structure
and paylevel
decisions.
11-2
Figure 11.1:
Issues in Developing a Pay Structure
11-3
Legal Requirements for Pay
Equal employment opportunity
Minimum wages
Pay for overtime
Prevailing wages for federal contractors
11-4
Legal Requirements for Pay:
Equal Employment Opportunity
• Employers must not base differences in pay on
an employee’s 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.
11-5
• Two employees who do the
same job cannot be paid
different wages because of
gender, race, or age.
• It would be illegal to pay
these two employees
differently because one is
male and the other is
female.
• Only if there are differences
in their experience, skills,
seniority, or job
performance are there legal
reasons why their pay might
be different.
11-6
Legal Requirements for Pay:
Minimum Wage
• Minimum wage – the
lowest amount that
employers may pay
under federal or state
law, stated as an
amount of pay per hour.
• Labor Code of the
Philippines– this
establishes a minimum
wage and requirements
for overtime pay and
child labor.
11-7
Legal Requirements for Pay:
Overtime Pay
• Normal work hours should not exceed 8 hours
a day. (Article 83 of the Labor Code of the
Philippines)
• OVERTIME PAY refers to the additional
compensation payable to employee for
services or work rendered beyond the normal
eight hours of work
• COVERAGE: This benefit applies to all except
for exempt employees
11-8
Legal Requirements for Pay:
Overtime Pay
• The overtime pay will vary if the overtime work is
rendered on a rest day, regular day, or special day
during the period between 10 pm and am of the
following day.
• For ordinary day, an additional compensation
equivalent to his regular hourly rate plus at least 25%
thereof.
• For rest day, regular day and overtime an additional
compensation equivalent to the rate for the first eight
hours on a holiday or rest day plus at least 30% thereof.
11-9
Legal Requirements for Pay:
Night Shift Differential
• NIGHT SHIFT DIFFERENTIAL: Article 86 of
the Labor Code or PD 442 provides that
every employee shall be paid a night shift
differential of not less than 10% of his
regular wage for each hour of work
performed between 10 pm and 6 am of
the following day.
11-10
Legal Requirements for Pay:
Exempt Employees
• government employees;
• managerial employees and officers or members of the
managerial staff;
• field personnel;
• members of the family of the employer who are dependent
on him for support;
• domestic helpers and persons in the personal service of
another; and
• employees who are paid by results, as determined by the
Secretary of the Philippine Department of Labor and
Employment (DOLE) in appropriate regulations.
11-11
Computation of Overtime Pay
On Ordinary Day
Regular Hourly Rate = Minimum Wage Rate
divided by 8 hours
Overtime Rate = Regular Hourly Rate plus 25%
of Regular Hourly Rate
11-12
Computation of Overtime Pay
On Rest Day and Special Day
Hourly Rate = 130% of Regular Hourly Rate
Overtime Rate = Hourly Rate on Rest Day plus
30% Hourly Rate on Rest Day
11-13
Computation of Overtime Pay
On Rest Day which falls on a Special Day
Hourly Rate = 150% of Regular Hourly Rate
Overtime Rate = Hourly Rate plus 30% Hourly
Rate
11-14
Computation of Overtime Pay
On a Regular Holiday
Hourly Rate = 200% of Regular Hourly Rate
Overtime Rate = Hourly Rate plus 30% Hourly
Rate
11-15
Computation of Overtime Pay
On a Rest Day which falls on a Regular Holiday
Hourly Rate = 260% of Regular Hourly Rate
Overtime Rate = Hourly Rate plus 30% Hourly
Rate
11-16
Legal Requirements for Pay:
Child Labor
• Republic Act No. 9231 IS AN ACT PROVIDING FOR
THE ELIMINATION OF THE WORST FORMS OF CHILD
LABOR AND AFFORDING STRONGER PROTECTION
FOR THE WORKING CHILD, AMENDING FOR THIS
PURPOSE REPUBLIC ACTNO. 7610, AS AMENDED,
OTHERWISE KNOWN AS THE "SPECIAL PROTECTION
OF CHILDREN AGAINST CHILD ABUSE,
EXPLOITATION AND DISCRIMINATION ACT"
11-17
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.
11-18
Pay Level: Deciding What to Pay
Pay at the rate set by the market
Pay at a rate above the market
Pay at a rate below the market
11-19
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
11-20
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.
11-21
Figure 11.3: Opinions About Fairness –
Pay Equity
11-22
Pay Equity (continued)
• If employees conclude that they are under-rewarded,
they are likely to make up the difference in one of
three ways:
1. They might put forth less effort (reducing their inputs).
2. They might find a way to increase their outcomes (e.g.,
stealing).
3. They might withdraw (by leaving the organization or
refusing to cooperate).
• Employees’ beliefs about fairness also influence their
willingness to accept transfers or promotions.
11-23
Test Your Knowledge
• Mariah found out that a friend of hers with a
similar job in the same town makes significantly
more money than she does. Which of the
following is probably not the cause of this?
a) Different cost-of-living
b) The companies are in different product markets
with different pay strategies
c) Mariah is a poor performer
d) Mariah’s job is non-exempt
11-24
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
11-25
Table 11.1: Job Evaluation of Three Jobs
with Three Compensable Factors
11-26
Job Structure: Defining Key Jobs
• Key Jobs – jobs that have relatively stable
content and are common among many
organizations.
• Organizations can make the process of
creating the job structure and the pay
structure more practical by defining key jobs.
• Research for creating the pay structure is
limited to the key jobs that play a significant
role in the organization.
11-27
Pay Structure: Putting It All Together
Job
Evaluation
Job
Structure
Define
Key Jobs
Pay Rates
Pay Policy
Line
Pay
Survey
Pay
Grades
Pay
Ranges
Pay
Structure
11-28
Pay Rates
Organization obtains pay survey data
for its key jobs.
Pay policy line is established.
Pay rates for non-key jobs are then
determined.
11-29
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.
11-30
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.
• 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.
11-31
Pay Structure and Actual Pay
• Pay structure represents the organization’s
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.
11-32
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.
11-33