developing pay structure power point presentation

a way in developing compensation structure

1. DEVELOPING PAY STRUCTURE ARNULFO M. CAREL JR. BSBA 3 Sat Class ROLANDO VIDAN Instructor

2. OBJECTIVES: Understanding the equity theory and fairness To know developing pay levels To know the importance of process: Participation and Communication To know what are current challenges To identify government regulation of employees compensation

3. FROM THE EMPLOYER’S POINT OF VIEW Pay is critical in attaining strategic goals. Pay has a major impact on employee attitudes and behaviors. Employee compensation is typically a significant organizational cost. FROM THE EMPLOYEE’S POINT OF VIEW Policies having to do with wages, salaries and other earning affect their overall income and thus their standard of living. Both level of pay and fairness compared with other’s pay are important.

4. DEVELOPING PAY STRUCTURE

5. WHAT IS PAY STRUCTURE? The relative pay of different jobs (job structure) and how much they are paid (pay level). WHAT IS PAY LEVEL? The average pay, including wages, salaries and bonuses of jobs in an organization. WHAT IS JOB STRUCTURE? The relative pay of jobs in an organization.

6. TWO TYPES OF EMPLOYEE SOCIAL COMPARISON OF PAY, RELEVANT IN MAKING PAY LEVEL AND STRUCTURE DECISIONS. External Equity Pay Comparison - Focus on what employee in other organization are paid for doing the same general job. - Administration tool-market pay survey. Internal Equity Pay Comparisons - Focus on what employees within the same organization, but indifferent jobs are paid. -Job evaluation is the administrative tool.

7. Equity Theory and Fairness Two types of employee social comparisons of pay are especially relevant in making pay-level and job structure decisions: Pay Structure Decision Area Pay Level Job Structure Administrative Tool Market pay surveys Job evaluation Focus of Employee Pay Comparisons External equity Internal equity Consequences of Equity Perceptions External employee movement, labor costs, employee Attitudes Internal employee movement, cooperation, employee attitudes

8. DEVELOPING PAY LEVELS PRODUCT MARKET COMPETITION Organizations should compete efficiently in the product market. It must sell their goods and services at a quality and price that will bring a return on investment. Price is the most important dimensions among other dimensions like quality, service etc. LABOR MARKET COMPETITION This is the amount an organization must pay to compete against other companies that hire similar employees. It includes product markets that hire similar types of employees.

9. EMPLOYEE AS A RESOURCE Employee is a resource that company has to invest and from it expect valuable returns. EFFICIENCY WAGE THEORY It states that wages influence worker productivity. It explains the circumstances in which benefits of higher pay outweigh the higher costs. MARKET PAY SURVEYS To compete for talent, organizations use benchmarking. Benchmarking is a procedure in which it compares its own practices against those of the competition. RATE RANGES -Different employees in the same job may have different pay rates. -It permits a company to recognize differences in employees performance, seniority, training. Example: blue-collar jobs may have single rate of pay for all employees within the job. KEY JOBS Are benchmarking jobs that have relatively stable content and are common to many organizations so that market-pay survey data can be obtained.

10. Job structure It is the relative worth of various jobs in the organization, based on internal comparisons.   Job structure decisions are made through the following: Job Evaluation Is composed of compensable factors and a weighing scheme based on the importance of each compensable factor to the organization. Compensable factors are the characteristics of jobs that an organization values and chooses to pay for. Point Factor System After generating scores for each compensable factor on each job, job evaluators often apply a weighing scheme to account for the differing importance of the compensable factors to the organizations.  

11. DEVELOPING A PAY STRUCTURE Use of three pay setting approaches: Market survey data An approach with the greatest emphasis on external comparisons (market survey data) is achieved by directly basing pay on market surveys that cover as many key jobs as possible.   Pay policy line Combining information from external and internal comparisons to derive pay rates for both key and non-key jobs. Pay grades This is to group jobs into a smaller number of pay classes or pay grades. Each job within a grade would have the same rate range.

12. CONFLICT BETWEEN MARKET PAY SURVEYS AND JOB EVALUATION The relative worth of jobs is quite similar whether based on market pay survey or job evaluation. However some inconsistence arise. These are usually indicated by jobs whose average survey pay is significantly below or above the pay policy line. HOW THIS CONFLICT CAN BE RESOLVED An organization can resolve to use only the internal control An organization can formulate its own strategy by choosing to be a pay leader. There are no right answers. An organization should consider its strategy and what jobs and/or functions will be critical for success. MONITORING COMPENSATION COSTS A way to examine the difference between policy and practice is to compute a compensation, which is an index of correspondence for actual and intended pay.

13. The Importance of Process Participation 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. Communication 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.

14. Problems with job-based pay structure. May encourage bureaucracy Bureaucracy may encourage lack of flexibility and a lack of initiative on the part of employees. Hierarchical nature reinforces a top down decision making. Structure’s hierarchical nature reinforces a top down decision making and information flow as well as status differentials-prevent taking advantages of skills and knowledge of closet to production. Becomes a barrier to change Bureaucracy becomes a barrier to change because wholesale change to job descriptions involves a lot to time and cost. It may not reward desired behaviors. Encourages promotion seeking behavior Emphasis on job levels and status differentials encourages promotion-seeking behavior but discourage lateral employee movement.     CURRENT CHALLENGES

15. RESPONSES TO PROBLEM WITH JOB BASED PAY STRUCTURE Delayering and Banding Reducing number of job levels to achieve more flexibility in job assignments and in assigning merit increases. Paying the person: pay for skill, knowledge and competency Moving away from linking pay to jobs and towards building structures based on individual characteristics such as skill and knowledge. Skill –based pay systems seems to fit well with the increased breadth and depth of skill that changing technology continues to bring.

16. Equal Employment Opportunity EEO regulation prohibits sex, religion, nation of origin and race based differences in employment outcomes such as pay unless justified by business necessity. Organizations must deal with changing labor market and demographic realities. NEW DEVELOPMENTS IN DESIGN OF PAY STRUCTURES With globalization there is need for organizations to be competitive both in labor costs and productivity. The nature of pay structures is undergoing a fundamental change. One such change is the move to power pay levels to reduce labor costs and bureaucracy. Some employers are shifting from paying employees for narrow jobs to giving them broader responsibilities and paying them to learn the necessary skills. GOVERNMENT REGULATION OF EMPLOYEE COMPENSATION