HR Compensation: Creating Fair Pay Structures

Study Notes

Recognizing Employee Contributions with Pay

Organizations have a relatively large discretion in deciding how to pay employees.
Differences in performance by individual, group, organization, seniority, or skills determine the pay.

Creating a Fair Pay Structure

Create fair and impartial opportunities for pay raises by adhering to market standards and predetermined pay grades.
Factors to consider when choosing a pay structure include:
- Business size
- Industry
- Location
- Employee classification

Pay Structure

Pay structure refers to the system that defines what each individual and job role is paid based on their value to the business and effectiveness in their role.
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 earnings affect their overall income and standard of living
- Both level of pay and fairness compared with others' pay are important

Deciding What to Pay

Deciding pay levels is discretionary, and is based on a broad range.
The organization has to decide whether to pay at, below, or above the market average.
The advantage of paying above the market average is the ability to attract and retain top talent, which can translate into a highly effective and productive workforce.
The disadvantage is the added cost.
Efficiency wage theory states that wages influence worker productivity.

Market Pay Surveys

Benchmarking is a procedure by which an organization compares its own practices against those of the competition.
Issues to consider when using pay surveys include:
- Which employers should be included in the survey?
- Which jobs are included in the survey?
- If multiple surveys are used, how are all the rates of pay weighted and combined?

Rate Ranges

Rate ranges refer to different employees in the same job that may have different pay rates.

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.
Compensable factors include:
- Job complexity
- Working conditions
- Required education
- Required experience
- Responsibility

Developing a Pay Structure

Three pay-setting approaches include:
- Market survey approach
- Pay-policy line approach
- Pay grades approach
The range spread is the distance between the minimum and maximum amounts in a pay grade.

Importance of Pay Structure

Pay structures help companies monitor and control company expenses.
Pay structures provide employees with set figures for expected earnings, improving transparency and open communication between employees and employers.
Pay structures help organizations remain competitive as an employer.
Pay structures are helpful for calculating raises.

Description

Learn how to create fair and impartial pay structures for your business, considering factors such as market standards, business size, and industry. Ensure honest and unbiased opportunities for pay raises.