establishing a pay structure_rahul(124)

8/7/2019 Establishing a Pay Structure_Rahul(124)

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Presentation

On

Compensation Management

Establishing a Pay Structure

Presented By:- Rahul Tamrakar (124)


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Learning Objectives

List the major decision areas and concepts in employeecompensation management.

Describe the major administrative tools used to manageemployee compensation.

Explain the importance of competitive labor-market andproduct-market forces in compensation decisions

Discuss the significance of process issues such ascommunication in compensation management

Describe new developments in the design of pay structures.

Explain where the United States stands from an internationalperspective on pay issues.

Explain the reasons for the controversy over executive pay.

Describe the regulatory framework for employeecompensation


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Introduction

From the Employers point of view: Pay is critical in attaining strategic goals. Pay has a major impact on employee attitudes

and behaviors. Employee compensation is typically asignificant organizational cost.

From the Employees point of view: Policies having to do with wages, salaries, and

other earnings affect their overall income andthus their standard of living.

Both level of pay and fairness compared withothers pay are important.


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Pay Decisions

Job structure is the relative pay of jobs inorganizations (i.e., the range of pay often

expressed by salary grades). Pay level is the average pay in organizations,

including wages, salaries, and bonuses.

Pay structure refers to the relative pay of

different jobs (job structure) and how much theyare paid (pay structure).

Pay policies are attached to jobs, not individuals.


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Legal Requirements for Pay

Equal Employment Opportunity: Employers tomake sure that there should be equal pay forequal work

Minimum Wages : FairLabor StandardsAct(FLSA) establishes a min wage that nowstands at $5.15 per hour. Then Congressestablish Training Wage in 1990.

Overtime Pay

Child Labor : Rules (by FLSA) apply to childrenunder 18 yrs.

Prevailing Wages : Only for construction andgovt. Contractors


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DevelopingPay Levels - Market

Pressures

Two important competitive marketchallenges in deciding what to pay itsemployees:

y Product-market competition the challenge tosell goods and services at a quantity and pricethat will bring a return on investment.

y Labor-market competition the amount an

organization must pay to compete against otherorganizations that hire similar employees.


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Product Market and 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 moreimportant when:

Attracting and retaining employees is difficult.

The costs of recruiting are high


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Deciding What to Pay

Deciding pay levels is discretionary, and is basedon a broad range.

The organization has to decide whether to pay at,

below, or above the market average. Efficiency wage theory states that wages

influence worker productivity.

y The benefits of higher wages may outweigh higher

costs when the organization's technology orstructure depends on highly skilled employees orwhen the organization has difficulty observing andmonitoring employee performance.


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Market Pay Surveys

Benchmarking is a procedure by which anorganization compares its own practices againstthose of the competitors.

The following issues must be determined beforepay surveys are used:

y Which employers should be included in the survey?

y Which jobs are included in the survey?

y If multiple surveys are used, how are all the rates ofpay weighted and combined?


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Developing a Job Structure

A job structure refers to the relative worth ofvarious jobs in the organization, based on internalcomparisons.

Job evaluation is an administrative procedurethat measures a job's worth to the organization.

y The evaluation process is composed ofcompensable factors, which are the characteristicsof jobs that an organization values and chooses to

pay for.y Job evaluators often apply a weighting scheme to

account for the differing importance of thecompensable factors to the organization.


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Methods of Job Evaluation

Analytical Method: Point Ranking Method

Factor Comparison Method

Non-Analytical Method:

Ranking Method Job Grading Method


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Point Method

Points method is an analytical method ofjob evaluation which is based on breakingdown jobs into factors or key elements.

Methodology consists of following points:1. Factor selection(ex: skill , effort ,

responsibility )2. Factor plan design3. Job Analysis

4. Evaluating jobs5. Grading Jobs6. Review and Appeals


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Degree and Grading

DEGREE Taking factor as Education or Trade knowledge 1st degree (able to read and write , add and

subtract). 2nd degree(able to use arithmetic operations ,

drawings , can read vernier caliper ,scale etc.) 3rd degree(a graduate in science etc. , work exp.

,advanced mathematics, complex drawings) Similarly 4th and 5th degree. GRADING Grading is done by adding the points of all the

factors.


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Developing a Pay Structure

Three pay-setting approaches include:

y Market survey approach - The greatest emphasisis on external comparisons. It bases pay on marketsurveys that cover as many key jobs as possible.

y Pay-policy line - A mathematical expression thatdescribes the relationship between a jobs pay andits job evaluation points.

y Pay grades - Grouping jobs of similar worth or

content together for pay administration purposes.o The range spread is the distance between the

minimum and maximum amounts in a pay grade.


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Conflicts between Market Pay

Surveys and Job Evaluation In resolving the conflict, emphasizing the

internal data would drive up labor costsand creates product-market problems.

If external market data are emphasizedand a job is paid lower internally, thecomparisons that employees makeinternally would result in dissatisfaction.

There are no right answers. Anorganization should consider its strategyand what jobs and/or functions will becritical for success.


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Globalization, Geographic

Region, andP

ay Structure

Pay structures can differ substantiallyacross countries both in terms of their level

and in terms of the relative worth of jobs. Expatriate pay and benefits continue to be

linked more closely to the home country.However, this link appears to be slowly

weakening and now depends more on thenature and length of the assignment.


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Current Issues InvolvingPay

Structure Job-based pay structures can create the following

problems:y They encourage bureaucracy.

y They reinforce top-down decision making as well asstatus differentials.

y The bureaucracy, time, and cost required togenerate and update job descriptions can become abarrier to change.

y The job-based structure may not reward desiredbehaviors, where the knowledge, skills, and abilitiesneeded yesterday may not be helpful today andtomorrow.


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Cont

Responses to problems with job-based paystructures include the following:

y Delayering is reducing the number of job levels.

This provides more flexibility in job assignments.y A second response to job-based pay structure

problems has been to move away from linkingpay 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 thejob they are performing at a point in time.


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Pay for Executives

Executive pay has been given widespread

attention in the press.

y However, executive pay accounts for a small

proportion of the labor costs of an organization,and executives have a disproportionate ability toinfluence organizational performance.

y Executives also help set the culture, so if their

pay seems unrelated to organizationalperformance, employees may not understandwhy their pay should be at risk depending on theorganization's performance.


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Reasons for Executive Pay

Criticisms

Some executives are very highly paid, suchas the CEO of Walt Disney, who earns over

$600 million. Executives in the United States are the

best paid in the world.

The ratio of executive pay to average

worker pay is cited as creating a "trust gap"in which workers do not trust executives'intentions and resent their pay.


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Popular Industries Salary Range

of CEO in India

IT Services Rs 879,908 - Rs 5,324,338

Financial Services Rs 1,021,445 - Rs 5,404,104

Multi-Level Marketing Rs 737,174 - Rs 4,940,266

Chemical Manufacturing Rs 761,245 - Rs 5,066,065

Manufacturing and Distribution Rs 914,791 - Rs 5,426,912


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establishing a pay structure_rahul(124)

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