Human Resource Management Gaining a Competitive Advantage Chapter

Human Resource Management Gaining a Competitive Advantage Chapter 11 Pay Structure Decisions Mc. Graw-Hill/Irwin Copyright © 2008 by The Mc. Graw-Hill Companies, All Rights Reserved. 1 -1

Introduction From the employer’s point of view: From the employee’s point of view: • Pay is critical in • Policies having to do attaining strategic goals. with wages, salaries, and other earnings • Pay has a major impact affect their overall on employee attitudes income and thus their and behaviors. standard of living. • Employee • Both level of pay and compensation is fairness compared with typically a significant others’ pay are organizational cost. important. 11 -2

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 11 -3

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. 11 -4

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. 11 -5

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. 11 -6

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. 11 -7

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. 11 -8

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. 11 -9

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. 11 -10

CEO Remuneration in U. S. Dollars 11 -11

Executive Compensation • Two factors contributed to pay scales that now have CEOs earning more than 300 x 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 $1 m 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. 11 -14

Assertiveness Gap? • Study of MBAs entering job market, interviewing for position paying $61 K – 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 11 -15

“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, Radio. Shack, 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”) – Radio. Shack 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 11 -17

FACULTY SALARY DATA: 2008 -09 (tuition/fees 2008 -09, in-state) Source: US News College Report www. colleges. usnews. rankingsandreviews. com/college 11 -18

Note: median salary for HR Director (non-autonomous), adjusted to Evansville CPI, 10/09: $112, 636 (req 7 -10 years exp) (salary. com) 11 -19

AVERAGE FACULTY SALARIES, SELECTED FIELDS FOUR-YEAR INSTITUTIONS, 2007 -08 Source: March 14, 2008 Issue of The Chronicle of Higher Education 11 -20