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Pay Structure Decisions

In this chapter we have discussed the nature of the pay structure and its component parts, the pay level, and the job structure. Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay. Employees make external comparisons between their pay and the pay they believe is received by employees in other organizations. Such comparisons may have consequences for employee attitudes and retention. Employees also make internal comparisons between what they receive and what they perceive others within the organization are paid. These types of comparisons may have consequences for internal movement, cooperation, and attitudes (like organization commitment). Such comparisons play an important role in the controversy over executive pay, as illustrated by the focus of critics on the ratio of executive pay to that of lower-paid workers.

Pay benchmarking surveys and job evaluation are two administrative tools widely used in managing the pay level and job structure components of the pay structure, which influence employee social comparisons. Pay surveys also permit organizations to benchmark their labor costs against other organizations’. Globalization is increasing the need for organizations to be competitive in both their labor costs and productivity.

The nature of pay structures is undergoing a fundamental change in many organizations. One change is the move to fewer pay levels to reduce labor costs and bureaucracy. Second, some employers are shifting from paying employees for narrow jobs to giving them broader responsibilities and paying them to learn the necessary skills.

Finally, a theme that runs through this chapter and the next is the importance of process in managing employee compensation. How a new program is designed, decided on, implemented, and communicated is perhaps just as important as its core characteristics.

Noe (SIE)Online Learning Center

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