Chapter 11
Establishing a Pay
Structure
Decisions About Pay

Job Structure
– Relative pay for different jobs within the
organization

Pay level
– Average amount the organization pays for
a particular job

Pay structure
– The pay policy resulting from job structure
and pay-level decisions
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Issues in Developing a Pay Structure
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Legal Requirements

Equal Employment Opportunity
– Differences in pay must be tied to
business-related considerations

Fair Labor Standards Act of 1938
– Establishes a minimum wage
– Requirements for overtime pay
– Child labor
– Exempt vs Non-exempt
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Market Influences

Product Markets
– Organizations that offer competing goods
and services
– Labor costs per industry
– Salary compression

Labor Markets
– Attracting the best employees
– Cost-of-Living
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Judgments About Pay Fairness
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Job Structure

Job evaluation
– Measuring the relative internal worth of
the organization’s jobs

Hay Guide-Chart Profile Method
– Creates a profile for each position
• Required know how
• Degree of problem solving
• Accountability
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Pay Structure
Pay rates
 Pay policy line

– Shows the mathematical relationship
between job evaluation points and pay rate

Pay grades
– Grouping sets of jobs having similar worth
or content together to establish pay rates
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Sample Pay Grade Structure
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Alternatives to Job-Based Pay

Delayering
– Reducing the number of levels
– Creates broad bands

Skill-based pay systems
– Pay structures that set pay according to
the employees’ skill level or knowledge
– Addresses capabilities as well
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Pay Structure and Actual Pay

HR is typically
responsible for
setting and
monitoring the pay
structure
 Compa-Ratioratio of average
pay to the
midpoint of the
pay range
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Chapter 12
Recognizing Employee
Contributions with Pay
Effective Incentive Pay Plans
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Individual Incentives
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Team or Group Incentives
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Organizational Incentives
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Balanced Scorecard

A combination of performance measures
directed toward the company’s long- and
short-term goals
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Balanced Scorecard
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Incentive Pay for Executives
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