COMMERCE 2BC3 Chapter Notes - Chapter 8: Job Analysis, Newly Industrialized Country, Pension
4 Jul 2018
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Chapter 8 – Pay Structure Decisions
Pay Structure: the relative pay of different job (job structure) and how much they are paid (pay level)
Pay Level: The average pay, including wages, salaries, and bonuses, of jobs in an organization
Job Structure: The relative pay of jobs with an organization
Equity Theory and Fairness
Equity theory suggests people evaluate the fairness of their situation by comparing them with those of other
people.
According to the theory, if a person (P) compares his own ratio of perceived outcomes (O) (pay, benefits, working
conditions) to perceived inputs (I) (effort, ability, experience) to the ratio of a comparison other (o) OP/IP <,>or =
Oo/Io
If P’s ratio is smaller than the comparison’s ratio, under reward inequity results, if P’s is larger, over reward
inequity results although this type of inequity is less likely because P may rationalize the situation by re-evaluating
his outcomes less favourably or inputs more favourably
Perceived inequity may cause P to restore equity some ways of doing this are counterproductive, including:
1. Reducing one’s own inputs
2. Increasing one’s outcomes (theft)
3. Leaving the situation that generates perceived inequity
2 types of employee social comparisons of pay are especially relevant in making pay level and job structure
decisions
4. External equity – Pay comparisons focus on what employees in other orgs are paid for doing the same
general job
5. Internal equity – pay comparisons focus on what employees within the org but in different jobs are
paid
Developing Pay Levels
Market pressures
6. Any org faces 2 important competitive market challenges in deciding what to pay employees
1. Product market competition
1. Orgs must compete effectively in the product market they compete on multiple
dimensions including price (cost of production is an important influence)
1. Higher labour costs = have to charge higher prices
2. Therefore, product market competitions place an upper bound on labour costs and
compensation this upper bound is more constrictive when labour costs are a large share of
total costs and when demand for the product is affected by changes in price
3. Components of labout costs – major component is avg cost/employee made up of both
direct payments (salary, benefits) and indirect (CPP)
2. Labour Market Competition
1. Is the amount an org must pay to compete against other orgs that hire similar employees
2. This competition places a lower bound on pay levels
Employees as a Resource
7. Orgs should consider employees a resource as opposed to a cost
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8. Org’s competitive position can be compromised if costs are kept low at the expense of employee
productivity and quality
9. Having higher costs than your competitor isn’t always bad if you have the best and most effective
workforce
Pay Levels: Deciding what to pay
10. An important decision is whether to pay above, at, or below market averages
11. The advantage to paying above is the ability to attract and retain top talent available
1. Disadvantage is added cost
2. Efficiency wage theory: is a theory stating that wages influence worker productivitiy
Market Pay Surveys
12. To compete for talent, orgs use benchmarking: a procedure in which an org compares its own
practices against those of the competition benchmarking is accomplished through pay surveys,
which provide info on going rates of pay among competitors
13. The use of pay surveys requires answers to several important questions:
1. Which employers should be included in the survey? Ideally, they would be the key labour market
and product market competitors
2. Which jobs are included in the survey?
3. If multiple surveys are used, how are all the rates of pay weighted and combined?
14. Several factors affect decisions on how to combine surveys
15. Product market comparisons that focus on labour costs are likely to deserve greater weight when:
1. Labour costs rep a large share of total costs
2. Product demand is elastic
3. Supply of labour is inelastic
4. Employee skills are specific to the product ,arket
16. Labour market comparisons may be more important when
1. Attracting and retaining qualified employees is hard
2. Costs of recruiting replacements are high
17. Rate Ranges
1. Permits a company to recognize differences in employee performance, seniority, training, and so
forth in setting individual pay
18. Benchmark Jobs and Nonbenchmark Jobs
1. Benchmark jobs (key jobs) have relatively stable content and are common to many orgs
therefore its possible to obtain survey data on them
2. Non benchmark jobs (non-key jobs) are unique to orgs, they cannot be directly valued or
compared through the use of market surveys
Developing a Job Structure
19. Job structure can be defined as the relative worth of various jobs in the org based on these types of
internal comparisons – how are these decisions made?
20. Job evaluations
1. Compensation managers have developed 5 main types of job evaluation overtime
2. 3 most commonly used: ranking, classification/grade description and the point method
3. Both ranking and classification are qualitative approachs that require comparison of whole jobs
to each other and rely on the judgement of individuals incolved in the job process
4. Point method provides a quantitative approach in which each job is assigned to a unique point
value based on a detailed analysis of that job’s compensable factors, or the characteristics of jobs
that an org values and chooses to pay for. After breaking the job into compensable factors,
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evaluators assign each point value according to a predetermined points table in a jobs evaluation
manual. Final step is to add together all the points assigned to compensable factors, which
determins the point value of the overall job
21. Ranking Method
1. Simplest and cheapest of all other approaches
2. Involves asking a committee of job evaluators to examine job decriptions of all jobs in the org
and rank the jobs from highest to lowest value to the org until a job structure is created
3. 2 variations:
1. Alternation ranking
1. Evaluators begin by examining all jobs in org, on the basis of what they know about the
job, they decide which seems to be the most valuable job in the org and the least
valuable. then the next most valuable in the org and the next least valuable and this
continues
2. Paired comparison
1. Works better when there are more jobs to be considered
2. Each individual job is methodically compared to each other job in the org one by one.
Jobs are then ranked from highest to lowest depending on the outcomes of many
speicifc comparisons
22. Classification
1. Many large public sector org use this
2. Uses generic org-wide descriptions to classify jobs into groups with other similar jobs that fit the
same generalized description
3. The process begins with creating general classes of jobs and writing a number of grade
descriptions for each class
4. Once this is finished, a series of grade descriptions for each class is written to further
differentiate the level of skill, experience, complexity, and responsibility required for jobs placed
in each grade
5. Once class and grade descriptions are written for all types of jobs in the org, salary max and min
are set for each classification and grade and adjusted annually or according to collective
bargaining agreements
6. Number of clasifications and grades within each class, and their descriptions areunique to each
orgamnization and can vary considerably
7. The advantage of this is that once its in place, it can provide orgs with a universal and easy
approach for coping with hundreds of jobs in a more efficient and cost effective manner
8. More defensible than rank system since both job rank and compensation are based on
universally agreed on and transparent classification and grade descriptions that have been
reviewed and agreed on by key stakeholders
9. However, if class or grade discriptions are too broad, there is room for error and conflict when
initially classifying a job, and such classifications can be difficult and time consuming to change in
large orgs
10. If they are too detailed, the system becomes very cumbersome, allowing little flexibility for
managers or the orgs to cope with external pressues on hiring such as globalization or shortages
of labour
11. The system does not allow comparison of jobs from diff job families which makes vit very difficult
to meet pay equity challenges
23. Point method
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Document Summary
Pay structure: the relative pay of different job (job structure) and how much they are paid (pay level) Pay level: the average pay, including wages, salaries, and bonuses, of jobs in an organization. Job structure: the relative pay of jobs with an organization. Equity theory suggests people evaluate the fairness of their situation by comparing them with those of other people. Perceived inequity may cause p to restore equity some ways of doing this are counterproductive, including: reducing one"s own inputs. 2 types of employee social comparisons of pay are especially relevant in making pay level and job structure decisions. External equity pay comparisons focus on what employees in other orgs are paid for doing the same general job. Internal equity pay comparisons focus on what employees within the org but in different jobs are paid. Market pressures: any org faces 2 important competitive market challenges in deciding what to pay employees.
