Human Resource Management Noe 8th Edition Solutions Manual

Human Resource Management Noe 8th Edition
Solutions Manual
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Human Resource Management Noe 8th Edition Solutions Manual
Chapter 11 - Pay Structure Decisions
Chapter 11 Pay Structure Decisions
Please click here to access the new HRM Failures case associated with this chapter. HRM
Failures features real-life situations in which an HR conflict ended up in court. Each case
includes a discussion questions and possible answers for easy use in the classroom. HRM
Failures are not included in the text so that you can provide your students with additional real-
life content that helps engrain chapter concepts.
Chapter Summary
This chapter discusses the nature of the pay structure and its component parts, the pay level, and
the job structure. Equity theory is discussed relative to internal and external comparisons that
employees make about their pay. Such comparisons may have consequences for employee
attitudes and retention. Such comparisons also play an important role in the controversy over
executive pay. Two administrative tools used in managing pay level and job structure
components of the pay structure are pay benchmarking surveys and job evaluation. A discussion
of globalization suggests why benchmarking is increasingly critical to meet the competition. A
theme that runs through this chapter is the need to consider how the organization's strategy
matches the compensation plan. For example, skill-based pay is discussed in terms of the trend
toward reducing bureaucracy and communication of compensation being critical to reinforce
participation and commitment that is increasingly expected from employees.
Learning Objectives
After studying this chapter, the student should be able to:
1. List the major decision areas and concepts in employee compensation management.
2. Describe the major administrative tools used to manage employee compensation.
3. Explain the importance of competitive labor-market and product-market forces in
compensation decisions.
4. Discuss the significance of process issues such as communication in compensation
management.
5. Describe new developments in the design of pay structures.
6. Explain where the United States stands from an international perspective on pay issues.
7. Explain the reasons for the controversy over executive pay.
8. Describe the regulatory framework for employee compensation.
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Extended Chapter Outline
Note: Key terms appear in boldface and are listed in the "Chapter Vocabulary" section.
Opening Vignette:
Wage Growth in China Means Companies Have Decisions to Make
This opening scenario examines the increasing labor costs in China, which have been 20 percent
in the past year alone. These increases have implications for where manufacturing companies
like Coach locate their production facilities. Coach plans to move from China to countries such
as India, Vietnam, and the Philippines, where it expects to have lower labor costs than it has in
China for the foreseeable future. Yue Yuen Industrial, the world’s largest maker of shoes, has
begun to move manufacturing from China to Bangladesh and Cambodia. Although one reason
companies locate production in China is to capitalize on its low labor costs, companies are
finding that labor costs can change quickly.
Discussion Question
1. Explain what some of the implications of relocating production facilities are for HR
professionals in an organization.
There are human resource implications when a company decides to relocate its facilities.
Broadly speaking, these implications have to do with the decisions around what to do
with the workforce --- in particular, the workforce that is directly affected by the decision
to relocate. For lower paid, hourly, manufacturing workers, it does not make sense to
provide relocation assistance for them because their jobs are not highly specialized.
Therefore, when a company relocates, it has to consider the impact on the employees who
will likely be displaced. It then must make decisions about how to staff the new
operations in the area to which is relocates. The biggest consideration, when, is around
staffing. Additionally, it has to attend to issues of compensation and make its best attempt
to arrive at a competitive set of wages in the new location, while optimizing the decision
to relocate.
I. Introduction
A. From the employer's point of view, pay is critical in attaining strategic goals.
1. Pay has a major impact on employee attitudes and behaviors.
2. Employee compensation is typically a significant organizational cost. (See

Table 11.1 for industry companies of Total Compensation as a Percentage
of Revenues.)
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B. From the employees’ point of view, policies having to do with wages, salaries,
and other earnings affect their overall income and thus their standard of living.
C. Pay decisions can be broken into two major areas: Pay Structure and
Individual Pay.
1. Pay structure refers to the relative pay of different jobs (job structure)
and how much they are paid (pay structure).
2. Pay level is the average pay in organizations, including wages, salaries,

and bonuses.
3. Job structure is the relative pay of jobs in organizations (i.e., the range of
pay often expressed by salary grades).
4. Pay policies are attached to jobs, not individuals, in order to make the
process more manageable and equitable.
II. Equity Theory and Fairness
A. Equity theory describes a process in which people evaluate the fairness of their
pay by comparing their pay to that of other people.
1. A person will compare his or her ratio of perceived outcomes (e.g., pay,
benefits, etc.) to perceived inputs (e.g., education, effort, experience) to
the ratio of a comparison other.
2. If the person's ratio is higher, research suggests that rationalization will

occur to account for the perceived overpayment. If the comparison other's
ratio is higher, the person may attempt to restore equity by reducing one's
inputs (e.g., working less), increasing one's outcomes (e.g., asking for a
raise, theft), or leaving the company.
3. Two types of employee social comparisons of pay are especially relevant

in making pay-level and job structure decisions. (See Table 11.2)
a. External equity pay comparisons focus on what other organizations

pay for roughly the same job. These comparisons influence
decisions to join and remain in the organization. A market-pay
survey is used by organizations to examine the level of other
organizations' pay.
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b. Internal equity pay comparisons focus on what employees within

the same organization, but in different jobs, are paid. In addition,
employees make internal equity pay comparisons with others
performing the same job.
III. Developing Pay Levels
A. An organization faces two important competitive market challenges in deciding

what to pay its employees:
1. Product-market competition – the challenge to sell goods and services at a

quantity and price that will bring a return on investment. An organization
that has higher labor costs than its competitors will have to charge higher
prices for products of similar quality. This will likely lead to a loss of sales
to the competition. Product-market competition places an upper bound on
labor costs and compensation, although productivity differences are also
important. Labor costs are the average cost per employee (direct pay and
indirect compensation, such as benefits) and staffing level (number of
employees). Financially troubled organizations tend to focus cuts on one
or both of these.
2. Labor-market competition – the amount an organization must pay to

compete against other organizations that hire similar employees. Usually
these are companies with similar products and those that hire similar
employees. If an organization is not competitive, it will fail to attract and
retain sufficient numbers of high-quality employees. Labor-market
competition places a lower bound on pay levels.
B. Employees as a Resource
1. This is a philosophy that considers employees to be an investment that will

yield valuable returns. Controlling costs through noncompetitive pay can
result in low employee productivity and quality.
2. Pay policies and programs are one of the most important human resource
tools for encouraging desired employee behaviors and discouraging
undesired behaviors.
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C. Deciding what to Pay
1. Deciding pay is discretionary, with a broad range. The organization has to

decide whether to pay at, below, or above the market average.
2. Efficiency wage theory states that wages influence worker productivity.

The benefits of higher wages may outweigh higher costs when the
organization's technology or structure depends on highly skilled
employees or when the organization has difficulty observing and
monitoring employee performance.
D. Market Pay Surveys
1. Benchmarking is a procedure by which an organization compares its own

practices against those of the competition. Benchmarking in this situation
is done by pay surveys that provide information on the going rates of pay
of the competition.
2. Benchmarking is typically accomplished through use of pay surveys,

which provide information on going rates of pay among competing
organizations. The following issues must be determined before pay
surveys are used:
a. Which employers should be included in the survey?
b. Which jobs are included in the survey?
Competing Through Sustainability

Google Battles to Keep Talent
This vignette highlights the recruiting and retention challenges that face Google, which was once
one of Silicon Valley’s hottest job destinations. Now, the company is seen ad the “safe place to
work” rather than the “hot place to work.” Companies that are private, that can offer pre-IPO stock,
are now poaching staff from Google. These companies include Facebook, Twitter, and LinkedIn. In
response, Google acquired some start up companies such as social app maker Slide Inc.
Additionally, Google is giving each of its 23,000 employees at 10% raise.
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Discussion Question
1. Are “recruiting battles” a good thing, or a bad thing? Why? Explain your answer.
Student responses may vary. On one hand, recruiting wars are good because employees who
have skill sets in high demand have choices about where they go and where they invest their time
and talents. Recruiting battles can also be a good thing because they keep companies like
Google on alert that they need to keep their compensation packages competitive. Recruiting
battles can be a bad thing if they inflate salaries, or if they create unstable conditions in a labor
market.
c. If multiple surveys are used, how are all the rates of pay weighted
and combined?
3. Product-market comparisons will be more important when:
a. Labor costs represent a large share of total costs.
b. Product demand is elastic.
c. The supply of labor is inelastic.
d. Employee skills are specific to the product market.

4. Labor-market comparisons will be more important when:
a. Attracting and retaining employees is difficult.
b. The costs of recruiting are high.
5. As well as knowing what other organizations are paying, it is necessary to

know what those organizations are getting in return for their investment in
employees. Ratios such as revenues to employees or revenues to labor cost
could be used.
E. Rate Ranges
1. Use of rate ranges permit a company to recognize differences in

employee performance. Different employees in the same job may have
different pay rates.
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F. Key jobs and nonkey jobs
1. Key jobs are benchmark jobs that have relatively stable content and are
common to many organizations so that market-pay survey data can be
obtained.
2. Nonkey jobs are unique to organizations and cannot be directly valued or

compared through the use of market surveys.
Example: Typical key jobs would include administrative assistant,

department manager, controls engineer, and so on.
IV. Developing a Job Structure
A. A job structure refers to the relative worth of various jobs in the organization,
based on internal comparisons.
B. Job evaluation is an administrative procedure that measures a job's internal worth

to the organization.
1. The evaluation process is composed of compensable factors, which are

the characteristics of jobs that an organization values and chooses to pay
for.
C. The Point – Factor System - Job evaluators often apply a weighting scheme to account
for the differing importance of the compensable factors to the organization. Either a
priority weight can be assigned using expert judgment about the importance of each
factor, or weights can be derived statistically by how important each factor seems to be in
determining labor-market pay. (Table 11.3 indicates an example of a three-factor job
evaluation system).
Example: One of the most popular commercial point-factor systems on the

market is The Hay Plan, which includes three compensable factors: know-how,
problem solving, and accountability.
D. Developing a Pay Structure
1. Includes examining and balancing both internal and external comparisons.

There are significant differences in employers in terms of whether they
place priority on internal or external comparisons (Table 11.4 indicates an
example of both types of data for 15 jobs).
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2. Three pay-setting approaches include:
a. Market survey approach - This approach has the greatest emphasis

on external comparisons. It bases pay on market surveys that
cover as many key jobs as possible (for an example, see Table
11.5).
- A pay-policy line is a mathematical expression that describes

the relationship between a job’s pay and its job evaluation points.
(Figure 11.1).
b. Pay policy line - The second pay-setting approach combines

information from internal and external comparisons to derive pay
rates for both key and nonkey jobs. However, actual market rates
are not used for key jobs.
c. Pay grades – Group jobs into a smaller number of pay grades.

(Table 1.6 and the last column of Table 11.5 demonstrate a
five-grade structure).
- A pay grade is grouping jobs of similar worth or content

together for pay administration purposes.
- The range spread is the distance between the minimum and

maximum amounts in a pay grade
- Disadvantages of using grades are that some jobs may be

underpaid while others may be overpaid.
E. Conflicts Between Market Pay Surveys and Job Evaluation
1. The relative worth of jobs is quite similar overall, whether based on job
evaluation or pay survey data. However, some inconsistencies do arise.
2. In resolving the conflict, emphasizing the internal data would create a

situation of overpaying jobs that are paid less in the market, which drives
up labor costs (and creates product-market problems).
3. If external market data are emphasized and a job is paid lower internally,
the comparisons that employees make internally would result in
dissatisfaction.
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4. There are no right answers. An organization should consider its strategy

and what jobs and/or functions will be critical for success.
F. Monitoring Compensation Costs
1. The pay structure represents policy, but practice may not always coincide.
2. One way to examine the difference between policy and practice is to

compute a compa-ratio, which is the actual average pay for
grade/midpoint pay for grade (Table 11.7).
G. Globalization, Geographic Region, and Pay Structures
1. Pay structures can differ substantially across countries both in terms of

their level and in terms of the relative worth of jobs (See Figure 11.3).
2. Typically, 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 the nature and length of the assignment.
Evidence-Based HR
Sam’s Club, Costco, and Wal-Mart are all low-price retail merchandisers. Each one has a
different approach to labor costs. Costco has 338 stores and 67,600 employees, and is number
one in this market accounting for about 50 percent of the market. Sam’s Club has 551 stores and
110,200 employees and is number two, accounting for about 40 percent of the market. Costco
provides relatively high pay and benefits for its employees, compared to its competitors. The
average wage at Costco is $17 an hour, but at Wal-Mart the average wage is $10.11 an hour. 82
percent of Costco employees have health insurance coverage, but less than half have coverage at
Wal-Mart. The turnover at Costco, however, is unusually low, at 17 percent overall. Wal-Mart’s
turnover is 44 percent. Since the fully loaded cost of replacing a work who leaves is typically 1.5
to 2.5 times a workers’ annual salary, the lower turnover rates at Costco actually results in lower
costs of employee churn. Additionally, employees at Costco are more loyal and productive.
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Exercise
Identify an industry or industries (other than discount retailing industry). Have students select
one company to study, and have them conduct some research on the compensation and benefits
offered by the company they select. Encourage students to be creative in the ways that they
conduct their research. For example, have them go to the company’s employment site in order to
learn about their pay and benefits; have them talk to people who work at the company (where
possible) and ask them directly about their pay and benefits (where appropriate). Have students
report their findings back to the class. Facilitate a discussion on the differences in pay and
benefits philosophies, and consider how a pay and benefits policy impacts employee loyalty and
retention.
V. The Importance of Process: Communication and Participation
A. Since pay decisions might be viewed in different ways by different groups in the
organization and technology rarely provides a "right" answer, how decisions are
made and communicated is critical.
1. Participation should involve both those who will manage the process and
those who will be affected by it (HR staff and line managers). Usually,
participation comes in recommending, designing, and communicating a
pay program. Typically, pay-level decisions are only made by top
management.
2. Communication
a. The consequences of not communicating effectively are described

in a study in which a group that received pay cuts, but to which
was communicated adequate information and remorse, engaged in
significantly less theft after the pay cut than a group to whom
communication was inadequate.
b. 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 employee concerns about the structure
need to be addressed with changes to the structure.
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VI. Current Challenges
A. Although most commonly used, job-based pay structures can create the following
problems:
1. They encourage bureaucracy.
2. They reinforce top-down decision making as well as status differentials.
3. The bureaucracy, time, and cost required to generate and update job
descriptions and job evaluations can become a barrier to change.
4. The job-based structure may not reward desired behaviors, where the
knowledge, skills, and abilities needed yesterday may not be helpful today
and tomorrow.
5. The system encourages promotion-seeking behavior, but discourages

lateral movement.
Competing Through Technology:

Armies of Expensive Lawyers, Replaced by Cheaper Software
Artificial intelligence, of “e-discovery” software, can analyze documents in a fraction of the time
it takes, at a fraction of the cost, of a lawyer. Some programs go beyond just finding documents
with relevant terms at computer speeds. They can extract relevant concepts—like documents
relevant to social protest in the Middle East – even in the absence of specific terms, and deduce
patterns of behavior that would have eluded lawyers examining millions of documents. Mike
Lynch, the founder of Autonomy, is convinced that the legal sector will employ fewer, not more
people in the U.S. in the future. He estimated that the shift from manual document discovery to
e-discovery would lead to a manpower reduction in which one lawyer would suffice for work
that once required 500 and that the newest generation of software could cut head count by
another 50 percent.
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Discussion Question
1. If some of the predictions such as those set forth by Mike Lynch are true—that software
will lead to substantial decreases in demand for lawyers—what could the results be for
compensation levels for lawyers?
Certainly, it could be argued that there will always be a need for lawyers who have
specialties such as criminal defense or divorce, whose compensation levels will also
continue to reflect their specialty (keeping their compensation high). However, this
vignette suggests that technology is creating a displacement of lawyers, because software
is able to conduct the same type of work (such as e-discovery) much faster and in much
larger quantities than it takes a human. Therefore, it could be argued that technology is
going to exert a downward trend on the demand as well as the pay levels for lawyers.
B. Responses to problems with job-based pay structures include the following:
1. Delayering is reducing the number of job levels. This provides more

flexibility in job assignments and assigning merit increases. These broader
groups are also called broad bands. (Table 11.8 and Figure 11.4 provide an
example of pay bands).
2. A second response to job-based pay structure problems has been to move

away from linking pay to jobs and toward building structures on skill,
knowledge, and competency. Competency-based pay is similar but usually
refers to a plan that covers exempt employees (e.g., managers).
a. Skill-based pay typically pays individuals for the skills they are
capable of using rather than for the job they are performing at a
point in time.
b. Advantages are that flexibility helps promote lower staffing levels

and aids in situations where the manufacturing process demands
adaptable and flexible responses (e.g., flexible manufacturing,
just-in-time systems). It has also been suggested that skill-based
plans contribute to a climate of learning and adaptability and give
employees a broader view of how the organization functions.
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c. Potential disadvantages:
- The organization may find it difficult to use all skills

effectively (i.e., work design must also change).
- Employees may acquire skills quickly and compensation tops

out.
- Skill-based plans may require a larger bureaucracy (related to

skills definition and measurement, training, and certification).
- Lastly, there is almost no market information available on how

to price skills.
Example: Alliant Health Systems, Inc., a hospital and health-care

provider in Louisville, Kentucky, began testing a skills-based pay
(SBP) system in 1993. Today, only the finance department has
retained the system. It was decided that SBP was too complex to
design and administer to each work group. Source: "Lessons
Learned in Skill-Based Pay" by J. Morris, HRMagazine, June
1996, pp. 136-142.
VII. Can the U.S. Labor Force Compete?
A. The costs for labor are high in the United States, particularly in comparison to
newly industrialized and developing countries.
B. There are several factors to consider in shifting production to other countries:
1. Relative labor costs are very unstable over time because of fluctuations in
currency exchange rates.
2. The quality and productivity of national labor forces can vary

dramatically. Lower labor costs may reflect the lower average skill level
of the labor force.
3. In terms of comparative productivity, unit labor costs, and gross domestic

product per person, the United States is the highest in the world (See
Figure 11.5).
4. Nonlabor Considerations—Operating costs may be high enough to

compensate for lower labor costs. Also, product development and
customer response may be faster when manufacturing is closer to staff
groups.
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Competing Through Globalization:

VW Chops Labor Costs in the U.S.
VW will open a new plant in Chattanooga, Tennessee and this plant will give the German auto
maker much lower U.S. labor costs than not only its Detroit rivals but its Japanese competitors
on American soil. The new plant will pay workers about $27 an hour in wages and benefits,
roughly half the $52 an hour cost of labor at the Detroit Three auto makers and some non-union
U.S. plants owned by Toyota Motor Corp. and Honda Motor Co. VW was the world’s most
profitable automaker last year, and it is hoping this new plant makes the company more
competitive in the U.S. It hasn’t made money in the U.S. for the past decade because of the
unfavorable exchange rates between the dollar and the euro, which increases the cost of German-
built cars exported to the U.S.
Discussion Question 1
1. Explain VW’s strategy of chopping labor costs. Why is now a particularly good
time for VW to build and run a manufacturing plant in the South?
The south is less unionized than the north, which creates conditions for lower
labor costs. Additionally, although GM and Chrysler agreed to sharply lower pay
for new hires during the auto bailout, they have not had many employees coming
in at lower levels. This means that their labor costs remain high, which provides a
competitive advantage for VW. It is a particularly good item for VW to build a
plant in the south because of the downward trend on wages due to the United
Auto Workers concessions that have decreased labor costs from around $70 an
hour to around $58 an hour. This means that in general, auto workers –
particularly entry level auto workers—have expectations for compensation
packages that are likely lower than those in prior generations.
VIII. Executive Pay
A. Executive pay has been given widespread attention in the press. However,
executive pay accounts for a small proportion of the labor costs of an
organization, and executives have a disproportionate ability to influence
organizational performance. They also help set the culture, so if their pay seems
unrelated to organizational performance, employees may not understand why their
pay should be at risk depending on the organization's performance. Table 11.9 in
the text provides data on CEO compensation.
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B. There is much criticism of executive pay, however, because:
1. Some executives are very highly paid, such as the CEO of Walt Disney
over $600 million. However, these figures reflect participation in a stock
plan (Table 11.10).
2. Executives in the United States are the best paid in the world (see Table
11.11 for total remuneration of CEOs in selected countries).
3. Often, 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. The issue becomes even more salient when companies are
engaging in layoffs but are not cutting executive pay.
IX. Government Regulation of Employee Compensation
A. Equal Employment Opportunity (EEO) (Title VII) prohibits discrimination in all

employment outcomes, including pay, unless business necessity can be proven.
Two trends related to EEO are the increasing participation of women and
nonwhites in the labor force.
1. The proportion of wages that women earn compared to men was 81

percent in 2010, and Black to White earnings was 80 percent. There are
legitimate explanations such as education, experience, and occupation,
although even when these are controlled, differences remain.
2. Although the rates have risen in recent years, in the case of women, the
gap may be related to the fact that "women's" work may be undervalued.
Another hypothesis is related to "crowding," which argues that women
have been restricted to entering only a few (low-paid) occupations.
3. Comparable worth (or pay equity) is a public policy that advocates

remedies for any under evaluation of women's jobs. (See Table 11.13).
a. Typically, comparable worth becomes an issue when comparisons

between internal (job evaluation) and external (market surveys)
data suggest that there is conflict in which jobs predominantly
occupied by women are evaluated more highly internally than in
terms of the market data.
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b. One problem is that job evaluation is most often used to help apply
market-pay policy and not replace the market. There is also
concern that EEO regulations will attempt to replace market forces
(although there are no regulations related to comparable worth)
and that using only internal comparisons would result in
overpayment and underpayment in several instances in relationship
to the market, which would create a market disadvantage.
c. Despite potential problems with market shares, the courts have

consistently ruled that using the going market rates of pay is an
acceptable defense in comparable worth litigation suits.
d. Another approach has been to suggest that organizations should

examine, when women's pay falls behind that of men, entry and
access to promotions, and so on. Programs such as mentoring
might improve the ability of women to access higher-level jobs.
B. Minimum Wage, Overtime, and Prevailing Wage Laws
1. The Fair Labor Standards Act (FLSA) of 1938 established a minimum

wage and overtime pay rate.
2. Minimum wage is the lowest amount that employers are legally allowed
to pay. Minimum wage now stands at $7.25 an hour.
3. Executive, professional, administrative, outside sales, and certain

“computer employees” are exempt from FLSA coverage (the estimate is
that about 20 percent of jobs fall in this category). Exempt means that
these employees are not covered by the FLSA, and they are not eligible for
overtime pay.
4. The Davis-Bacon Act (1931) and Walsh-Healy Public Contracts Act

(1936) require federal contractors to pay employees no less than the
prevailing wages in the area. The prevailing wage is set by the Secretary
of Labor and is greatly influenced by relevant union contracts in the area.
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A Look Back
We began this chapter by looking at how U.S. automobile companies and their workers
have had to make dramatic changes to reduce labor costs in hopes of helping the
companies survive, as well as saving jobs. We also saw other strategies to control labor
costs in these difficult times. For example, some firms are offshoring work to countries
(e.g., China and India, but also the United States) in part, to make labor costs more
competitive.
Questions
1. What types of changes have the companies discussed in this chapter made to their pay
structures to support execution of their business strategies?
One example presented in the chapter is VW, which has built a new plant in Tennessee,
where starting wages for automobile workers are comparably lower than wages at
unionized plants such as those in Detroit. In a much different sense, Google has changed
their pay strategy—increasing pay by 10% for all of their employees—in order to be
more competitive with pre-IPO companies like Facebook and Twitter.
2. Would other companies seeking to better align their pay structures with their business
strategies benefit from imitating the changes made at these companies?
Yes, certainly the examples of VW and of Google provide illustrations of ways that
companies can align their pay structure to support their business strategies. Although the
examples are different—one is trying to keep wages low (VW) while the other is
increasing pay rates in order to become more attractive (Google), they both present
examples of pay structure alignment and its role in strategy.
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Chapter Vocabulary
These terms are defined in the "Extended Chapter Outline" section.
Pay Structure
Pay Level
Job Structure
Efficiency Wage Theory
Benchmarking
Rate Ranges
Key Jobs
Nonkey Jobs
Job Evaluation
Compensable Factors
Pay-Policy Line
Pay Grades
Range Spread
Compa-Ratio
Delayering
Skill-based Pay
Comparable worth
Fair Labor Standards Act (FLSA)
Minimum Wage
Exempt
Discussion Questions
1. You have been asked to evaluate whether your organization's current pay structure makes
sense in view of what competing organizations are paying. How would you determine
what organizations to compare your organization with? Why might your organization's
pay structure differ from those in competing organizations? What are the potential
consequences of having a pay structure that is "out of line" relative to your competitors'?
You would determine what organizations to compare an organization to by looking

primarily for organizations in a similar business and located in a similar geographical
region. Trade associations or employer associations can frequently help by providing
information.
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Your organization's pay structure may differ from those in competing organizations if
decisions are made to use pay as a primary reward strategy or perhaps emphasize other
issues. For example, your organization might offer good training opportunities for new
college graduates, and therefore, your pay-level decision is to pay typically below
market.
A consequence of having a pay structure out of line is that if you are overpaying, you will
find it increasingly difficult to compete, since your labor costs are too high. If you are
underpaying, it will be difficult to attract and retain employees. There are trade-offs,
however, that make a considerable difference in the consequences of over- or
underpaying in relationship to the market, for example, as mentioned in the text.
2. Top management has decided that the organization is too bureaucratic and has too many
layers of jobs to compete effectively. You have been asked to suggest innovative
alternatives to the traditional "job-based" approach to employee compensation and to list
the advantages and disadvantages of these new approaches.
The most innovative alternative discussed in the text is skill-based pay. The advantages
and disadvantages discussed in the text are as follows:
▪ Advantages are that flexibility helps promote lower staffing levels and aids in
situations where the manufacturing process demands adaptable, flexible
responses (e.g., flexible manufacturing, just-in-time systems).
▪ Potential disadvantages are that the organization may find it difficult to use all
skills effectively (i.e., work design must also change), employees may acquire
skills quickly and compensation tops out, and skill-based plans may require a
larger bureaucracy (related to skills definition and measurement, training, and
certification). Lastly, there is almost no market information available on how
to price skills.
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3. If major changes of the type mentioned in question 2 are to be made, what types of
so-called process issues need to be considered? Of what relevance is equity theory in
helping understand how employees might react to changes in the pay structure?
Communication and participation would both be critical if skill-based pay was

implemented. Communication would undoubtedly be complicated since, as mentioned in
the last question, employees must understand what skills are, how they are defined, what
has to be learned to be certified as acquiring a new skill, and so forth. Participation is also
important since skill-based pay is logically connected with the need for participation
(e.g., technology that is advanced and complex). It also makes sense to ensure
participation is built into the process so that skill-based pay will be cost-efficient: that is,
given the existence of skills, there should be a system that ensures the skills are
employed.
4. Are executive pay levels unreasonable? Why or why not?
There is evidence that may be presented on both sides for this question. The text
discusses that pay levels may not be unreasonable, since executives are critical in
determining the success of an organization. Data are also presented that suggest, on the
average, most executives are not paid that much differently from several other
professionals. In addition, only salaries themselves tend to be compared without benefits
hectored into the equation. This presents a different picture in comparing executive
compensation across countries.
On the other hand, there are some executives who tend to be very highly compensated
(often on the basis of stock options). This presents some problems relative to social
comparisons of workers. Ben & Jerry's policy of allowing the executives to earn no more
than seven times the salary of the lowest paid worker illustrates the social responsibility
issue related to executive pay. An interesting question would be whether, with more
profit sharing occurring, fewer perceptions of inequity would exist.
5. Your company plans to build a new manufacturing plant but is undecided where to locate
it. What factors would you consider in making a decision about which country (or state)
to build the plant in?
For most organizations, the cost of labor is the highest operating expense; therefore labor
with the appropriate skills must be available. Also, the area should be assessed to
determine prevailing wage and benefit rates. Some other issues to consider would be the
availability of an appropriate infrastructure to ensure your raw materials can arrive and
that you can ship your product with few problems, costs of building and running a plant,
supportiveness of local government, and tax structure. As the example of BMW
suggested, the organization must also consider whether customers will perceive that the
plant can produce the product at the appropriate levels of quality and quantity.
11-20
6. You have been asked to evaluate whether the pay structure is fair to women and
minorities. How would you go about answering this question?
First, you would have to examine whether any policies exist that are unfair to women and
minorities. For example, although it is likely that seniority plays a strong role in
rewarding employees, this is considered a legitimate factor. If there are, however,
separate seniority systems across your organization and women and minorities are
located in lower-paying departments, this is not legal.
Next, you would want to examine possible clusters of minorities and women, what their
jobs and skills are, and their average pay in comparison to white males in similar jobs and
with similar skills. A statistic, multiple regression, might be useful in determining what
predicts pay in the organization. For example, one would expect that experience,
education, certification of skills, and other job-related factors would predict pay while
race or sex should not be predictive.
Twitter Focus
Eight Crossings provides transcription services for physicians, attorneys, and health care
facilities. Employees work at the company’s office or in their homes. Sending files electronically
provided a competitive advantage that helped grow the business at a tremendous pace. The
downside to using electronic files was that it exposed Eight Crossings to increased competition
from low-wage locations such as India. To keep competitive with off-shore vendors, Eight
Crossings told its employees they would not be paid for “boilerplate text” that appeared in most
documents, which was generated automatically by transcription software. This cut brought pay
levels down to the market rate and kept the company competitive.
Question:
If you were a transcriptionist for Eight Crossings, how would you react to being told that you
wouldn’t be paid for “boilerplate text?”
Self-Assessment Exercise
Refer to the self-assessment exercise in the text.
11-21
Manager’s Hot Seat Exercise: Negotiation: Thawing the Salary Freeze-Please refer
to the Asset Gallery on the OLC for Hot Seat videos and notes.
I. Introduction
This scenario depicts a negotiation between labor and management. For an Organizational
Behavior or Management course, this vignette will stimulate a discussion on negotiation skills
and, potentially, ethics. Instructors of HR-related courses will find this vignette useful in
discussing the labor-management negotiations process.
II. Learning Objectives
1. To assess students’ understanding of the negotiation planning process and effective

execution.
2. To analyze a negotiation and identify effective and ineffective strategies and behaviors
that occurred during the negotiation.
3. To have students identify key issues related to labor-management negotiations and the
legal and managerial implications, therein.
11-22
III. Scenario Description:
Overview: An upper management executive of a magazine publishing company, JBL

Publishing, is negotiating with a Union representative regarding production workers’
contract. The main issues are salary increases, health benefits, and flexible work
schedules. The Union representative is irate, because she just found out, prior to this
meeting, that the executive board has received enormous bonuses for the year, at the
same time they are refusing to budge on salary increases for the production workers.
Profile:
• Katherine Knudsen has a degree in Marketing and Management and a law
degree. At JBL Publishing she is Vice President of Production, managing
operations and production. In addition to overseeing these departments,
Katherine handles all contract negotiation and labor relations.
• Alisa Jackson holds a Bachelor of Arts degree in Sociology. She has been a
union organizer and representative for over eight years, with efforts focused on
re-negotiation at the local level. Alisa has a renegotiation success rate of 95%,
winning better terms in one or more categories per contract. The renegotiation
with JBL publishing is her first in the printing industry.
References: The references included in the DVD are:

• Bargaining Zone for Negotiation (PPT 3-3)
• Concepts in Negotiating (PPT 3-5)
• Integrative Bargaining Strategy (PPT 3-6)
• Key Negotiator Behaviors (PPT 3-11)
Back History: Knudsen and Jackson have been meeting and talking frequently regarding
the contract renegotiation for the unionized labor force working in the printing
press/production building. Jackson is a new representative for Local 1087, coming from
an airline workers union where there were always very tough negotiation meetings.
Knudsen has been the VP of Production at JBL for 10 years and has negotiated all the
contracts over that time.
The renegotiation thus far has addressed the following issues:
• A 7% wage increase for workers with seniority

• An improved benefits package across the board
• More personal days and schedule flexibility to accommodate family needs
Knudsen has said flat out “no” to the wage increase – the company has a salary freeze for
all employees – labor and management included. Knudsen has slightly improved the
health package and is considering the schedule issues.
11-23
Scene Set-up: Jackson has called an immediate meeting. She wants to discuss the
executive bonuses and win more money for the union employees.
Scene Location: Knudsen’s Office; JBL Publishing; Wednesday 3:00pm
The Meeting - Summary: Alisa described her surprise that executives were receiving
large bonuses when Katherine had said there was no money for salary increases. She
immediately threatens to go the newspapers with this perceived inequity. Katherine
explained that the money allocated for bonuses was based on last year’s performance
even though the checks were cut this year. Alisa comes close to accusing Katherine of
not disclosing this information that she feels is pertinent to the current contract.
Katherine explains that it is not pertinent to the current contract because that money was
budgeted last year and does not pertain to this year’s cash flow situation. Alisa then
pursues the option of reallocating the bonus money so that the workers may receive a
share of the money currently allocated only to upper management. Katherine agrees to
draft a bonus distribution plan and present it to Alisa within the week. The two shake
hands and are gracious to each other at the conclusion of the meeting.
Afterthoughts – Summary: Katherine admits that the executive bonuses were more
relevant to the current negotiation than she let on. She had held out on mentioning the
bonus distribution option because she represents the company and didn’t want to have to
do that unless it was absolutely necessary because that was the only concession she had
to make. Alisa’s threat to go to the press to disparage the company concerned Katherine
but she did not want give up too much. Now that they will create a bonus-sharing plan,
Katherine says she will work very hard to make that solution work because she
recognizes the value of hourly workforce to the revenue of the company and strongly
believes in working towards a fair solution that will reward the employees if the company
does well.
Dossier: The specific artifacts included in the DVD are:

1. Email Summary of Knudsen and Jackson’s previous meeting
2. Email sent to Jackson re: the ‘sweet deal’ JBL Execs will be receiving
3. Excerpts from previous contract
11-24
IV. Discussion Questions:
The References and related Discussion Questions may be found in PowerPoint slides 3-1 to 3-12
on the instructor’s side of the text’s Website.
Learning Objective #1: To assess students’ understanding of the negotiation planning process.
1. The “Bargaining Zone for Negotiation” (PPT 3-3) shows where the potential area of
agreement may be. However, without planning and determination of one’s initial offer,
target point, and resistance point, a negotiator may be at a disadvantage during the
negotiation. What evidence of planning was demonstrated by Alisa and Katherine?
See answer for #2
2. For both Alisa and Katherine, describe how planning impacted their ability to
successfully negotiate.
Alisa received an email from a friend saying that he heard that executives at JBL
Publishing were receiving large bonuses. She planned to use this information as
leverage in the negotiation process as well as threaten to talk to the newspapers
about the perceived inequity. This strategy did work to Alisa’s advantage because
it caused Katherine to concede on the distribution of future management bonuses.
She also insinuated that Katherine was engaged in an unfair labor practice
because she did not bargain in good faith when she did not disclose the executive
bonuses. This approach was not that effective because Katherine took it
personally and could have ceased or significantly hindered future negotiations.
From the “Afterthoughts” it was clear that Katherine had investigated every
option that she would have during the negotiation process. Because she did not
have much, she did everything she could to not give-in to the union’s demands.
Katherine’s plan was to focus on the exact issue the union asked for – salary
increases – instead of finding alternatives that would satisfy the union.
Katherine’s plan was successful in that the union representative seemed satisfied
with the tentative agreement, did not ask for more, and did not intend to go to the
newspaper to create bad press for the company.
Learning Objective #2: To analyze a negotiation and identify effective and ineffective strategies
used and behaviors that occurred during the negotiation.
11-25
1. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 & 3-
6) did Katherine demonstrate during the negotiation? Justify your answer with examples
from the scenario.
While in the end Katherine supports an integrative approach that is fair to all
employees, she initially takes a distributive approach because she wants to give in
to the union as little as possible. She does not mention other alternatives and
“hides” behind financial logistics by saying the money that is being paid was from
a different pool of money. An integrative approach is characterized by discussing
the various options that would create a win-win outcome from the beginning.
 1. What strategy should Katherine take?

A. Continue to clarify
B. Apologize for omission
C. Change subject
Katherine should continue to clarify the situation. Apologizing for the omission
may make her appear guilty of an unfair labor practice by not bargaining in good
faith. If she changes the subject she will also appear to be insincere in her
bargaining and it will avoid the issue the union is most concerned about.
 2. Why does Katherine offer to show her pay stub?

A. Proof of salary freeze
B. Exert power
C. Change subject
She wants to make it clear and irrefutable that salaries of management have not
been raised either.
 3. Why didn’t Katherine offer this [bonus distributions] earlier?

A. Just thought of it
B. Just persuaded
C. Was stonewalling
Katherine didn’t want to offer her only point of leverage too soon because she had
nothing else to offer. Therefore, she held out on this solution until she absolutely
had to – she was stonewalling.
11-26
2. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 & 3-
6) did Alisa demonstrate during the negotiation? Justify your answer with examples from
the scenario.
Alisa’s goal is to get more money for the workers she represents. While initially
she tried for salary increases, she was open to other alternatives. Her approach of
threatening the management and accusing them of withholding information,
however, was not indicative of an integrative approach because she focused on
the person, not the problem.
 4. What should Alisa argue?

A. To split bonus money
B. Union will strike
C. Get better benefits plan
The union could strike on a mandatory issue, which salary and benefits are. This,
however, would emphasize the union’s position, rather than the common interests
of both parties. Offering to split the bonus money would present an alternative
solution that would meet the needs of the employees (more money) and prevent a
disgruntled workforce. If Katherine had outright rejected the idea to split the
bonus money, threatening to strike may be the only alternative. Getting a better
benefits plan was already in the works.
3. What is the superordinate goal (see PPT 3-5) in this situation? How would a discussion
of this goal aid the negotiation process?
The superordinate goal is the company’s success. If the company is not

successful, neither management nor the union will have jobs. Establishing a
common goal will aid the negotiation process because the ideas and issues
discussed should be linked to the company’s ultimate success. Therefore, data
and information presented during the negotiation as to how salary increases,
management bonuses, benefits, etc. will benefit the company directly will have
the most impact on the negotiation outcome.
Learning Objective #3: To have students identify key issues related to labor-management
negotiations and the legal and managerial implications, therein.
1. Katherine discussed a potential solution (bonus sharing) that had not previously been
discussed before. Is this an example of “unlawful circumvention” according to labor
laws? Why or why not?
11-27
No, because she was discussing this with the union representative. If Alisa had
been an employee who was not explicitly representing the union, this would have
been a case of unlawfully circumventing the union.
2. Assume Katherine refused to make a concession to Alisa’s request. According to the

National Labor Code, could Alisa organize a strike?
Yes, because the two parties were negotiating a new contract and salary and
benefits are “mandatory subjects” that have to be bargained in good faith.
3. Refer to the “Key Negotiator Behaviors” (PPT 3-11). Assume you are representing
management (like Katherine in this scenario). What exactly would you do in this
situation? Indicate a specific example for each of the key negotiator behaviors.
Answers will vary. Students should identify opportunities to use an integrative

approach.
 5. Katherine is accused of lying. She should:

A. Demand apology
B. End negotiation
C. Refute accusation
This is an example of a person, not problem oriented behavior. Katherine should

refute the accusation and indicate that personal attacks will not facilitate the
negotiation process.
 6. In this negotiation….
A. JBL gave too much
B. JBL gave too little
C. Nothing was resolved
Katherine and Alisa seemed pleased with the outcome of the negotiation. It
seems that both parties were bargaining in good faith and would come up with a
mutually beneficial solution.
11-28
Exercising Strategy: Changing Compensation to Support Changes in Corporate Strategy
Questions
1. What are the pros and cons of Corning’s new pay structure?
Student answers will vary.

Con: Divestiture reduced annual revenues.
Pros: Changing job structure helps the company develop products quicker and more
efficiently. Decentralization contributes to flexibility in the organization. Tying pay to
performance motivates employees.
2. How did shifting product market conditions affect Corning’s restructuring and its
success?
Student answers may vary. These shifting environmental conditions meant that Corning
had to increase its ability to move quickly in responding to customer needs. The
company was able to accomplish this by encouraging flexibility, learning, and teamwork.
Managing People
Workers at Harley and Sub-Zero Accept Pay Freezes and Cuts to Keep Their Jobs from
Moving
At Harley-Davidson, union workers in Wisconsin agreed to an unusually long contract of seven

year. During that seven years, the company has the right to freeze wages. There will also be
higher healthcare expenses for workers. Sub-Zero/Wolf cut pay by 20 percent and will freeze
wages and benefits for the following four years.
Questions
1. Why do companies ask workers for wage and benefits cuts or freezes? Is it the right thing
to do?
Companies ask workers for wage and benefits cuts in order to bring labor costs into
alignment with their current financial situations. In the case of Harley-Davidson, for
example, the company lost $55 million in the past year and it is trying to find ways to cut
expenses (while, presumably, concurrently trying to find ways to increase revenue).
Student responses can and probably should vary regarding the second part of this
question, because it could be argue that moving jobs around to locations where labor is
relatively cheaper may help solve one individual company’s problems, but it could
potentially create a larger problem of worker displacement. It could also represent a lack
of integrity and a lack of regard for workers, who perhaps have spent significant parts of
their worklives engaged and invested in an employer who then displaces them for
11-29
financial reasons. Perhaps one way to reconcile this question is to consider the following:
If a company cuts wages and benefits as a matter of survival, and if all employees of all
strata (including highly compensated executives) take corresponding cuts to their own
compensation and benefit packages, then a case could be made that it is the right thing to
do. However, is cuts happen only to the most vulnerable workers—those who perhaps
have fewer options for mobility, and those who make the relatively least amounts of
compensation – in order to increase profitability—then it is not the right thing to do.
2. Why do workers agree to these concessions? What negotiating leverage do they have in
dealing with the company? What changes have occurred over time that have reduced the
negotiating leverage that workers have?
Workers agree to these concessions, probably, because they feel they have little choice in
the matter and they see the concessions as a means to keep their jobs. Changes that have
reduced the negotiating leverage of workers include an increase of factories and other
types of operations in the southern part of the United States, which is less unionized than
the northeast part of the United States. Additionally, the ease with which companies can
now offshore work creates additional pressure on workers in the United States, and it
reduces their ability to negotiate.
3. What are the future prospects for workers in manufacturing? Does it differ from state to
state or country to country? Explain.
Student responses certainly can vary in response to this question. Manufacturing workers
continue to be needed, but the context has changed over the last few years because of the
ease (as indicated in the suggested response to question #2) with which companies can
shift their operations, and the decline of unions in the United States. Therefore, prospects
differ country to country. The southern United States has relatively little union presence,
so future prospects for manufacturing workers can certainly vary state to state.
11-30
Additional Activities
Teaching Suggestions
1. One issue that may generate considerable heat and controversy is discussing in class
whether internal job evaluation results or external market-pay surveys should be used
when there is a conflict between internal and external data. It must be recognized that the
use of comparable worth is only an issue when there is conflict between the internal job
evaluation and external market-survey data. The choices are then to pay less and follow
the market data or use internal information to increase the salary grade or pay of the job
in question.
A debate could be organized to discuss this issue. The promarket side would tend to focus
on issues of competitiveness, external equity, and paying appropriately for human
resources. The prointernal side would discuss issues of internal equity, employee
perceptions of equity and motivation, and comparable worth. Students find the concept of
comparable worth highly controversial.
A library assignment to do additional readings and report to the class on the topic would
likely make the debate more lively and controversial. For example, reporting on the
Canadian province of Ontario's comparable-worth regulations and how they have worked
would be informative.
2. In 1990 a study was done of 313 firms, which followed a study done in 1987 of 323
firms, about the use of skill-based pay systems. In 1987, 40 percent of the firms used
skill-based pay, while in 1990 the percentage was 51 percent. The percentage of
employees covered remained approximately the same less than 20 percent in both 1987
and 1990. In 1990, 60 percent of the firms stated that skill-based pay was successful in
increasing organizational performance, while only 6 percent rated it as unsuccessful and
35 percent were undecided. The study supported the hypothesis that there would be more
skill-based pay associated with companies that used total quality management systems,
experienced heavy foreign competition, and removed management layers in recent years.
Lastly, the use of skill-based pay was associated with the use of a variety of other
reward-system practices (Adapted from: E. E. Lawler, G. E. Ledford, Jr., and L. Chang,
"Who Uses Skill-based Pay and Why," Compensation and Benefits Review 25 no. 2,
[1993], pp. 22-26.)
11-31
Questions for discussion on skill-based pay: Why do you believe that skill-based pay was
found more often in organizations that experienced a great deal of foreign competition?
In organizations that had removed management levels in recent years? In organizations
that also used a variety of other reward strategies?
Do you believe that the use of skill-based pay will continue to increase? Why or why not?
3. One interesting assignment, if you teach in a school where salaries are public
information, is to have students look at the differences in salaries for different disciplines
within the university and discuss the fairness and rationale for these differences. My
students are often interested in looking at the differences between professors in the
College of Business and professors in the Arts and Sciences. Also, we discuss the
differences in the salaries for professors in the college and the market salaries. In my
institutions, the professors' salaries are significantly below the market, and we discuss the
issue of wage compression, why this is a problem, and what alternatives organizations
have to deal with this issue.
4. Are CEOs paid too much? This is an issue that students could debate. One article that
does a good job of covering both sides is "Contrasting Perspectives—The Growing Pay
Gap: Are CEOs Paid Too Much Relative to Other Employees" by G. Crystal and F.
Cook, American Compensation Journal, Summer 1996, pp. 22-29. Another very
informative article on the subject is "Executive Pay Trends: Where Have We Been . . .
Where Are We Going" by P. Meyer, American Compensation Association News, June
1996, pp. 16-18.
HRM Failures
Top
Case 11: Paying for the Actual Position
After Ronald Stillman was hired as a sales manager in a Staples store, he spent much of his
time doing tasks normally assigned to an hourly employee, such as stocking shelves, sweeping
floors, and waiting on customers. He also worked more than 40 hours a week but wasn’t paid
overtime.
In a 2009 decision in Stillman v. Staples, Inc., a jury awarded Stillman and about 350 other
current or former Staples employees more than $2.4 million in unpaid overtime compensation.
The court ruled that Staples had failed to prove that the managers were exempt employees, and
because the employees had worked more than 40 hours a week, they were entitled to overtime
pay.
11-32
Human Resource Management Noe 8th Edition Solutions Manual
From 2000 to 2004, senior management at Staples had studied the sales manager position and
found that, on average, sales managers performed more hourly than managerial tasks. In 2002,
for example, the study found that Staples’s sales managers spent nearly two-thirds of their
time on hourly tasks.
Also, sales managers had no authority to adjust associates’ pay or discipline them without the
approval of a general manager and no discretion to deviate from certain company policies.
During the trial it was learned that Staples’s HR department was unaware that the company
had conducted a study of the sales manager position earlier and had no exit-interview data to
suggest why sales managers had left the company. Also, it could not demonstrate whether
employees agreed that the actual job duties were as described in the job description.
Question
If you were the employer, what would you have done to avoid this situation?
Possible answers
• Make sure the duties listed in a job description match an employee’s regular tasks.
• Before identifying whether or not a job is exempt from overtime pay, carefully test its
duties and conditions to assure it meets the definition of “exempt.”
• Maintain open communication across all corporate functions (for example, Finance,
Operations and IT) to share information about job design and job responsibilities.
Work to achieve a common understanding of what constitutes an exempt position.
• Consult your company’s legal department for guidance; if you have no in-house
attorneys, check with your outside legal counsel for an opinion.
Case: Stillman v. Staples, Inc., Civil Action No. 07-849 (KSH), U.S. Dist., New Jersey (Lexis
42247)
11-33
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Chapter 11 - Pay Structure Decisions

Chapter 11 Pay Structure Decisions

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Extended Chapter Outline

1. Pay has a major impact on employee attitudes and behaviors.

2. Employee compensation is typically a significant organizational cost. (See

2. Pay level is the average pay in organizations, including wages, salaries,

II. Equity Theory and Fairness

2. If the person's ratio is higher, research suggests that rationalization will

3. Two types of employee social comparisons of pay are especially relevant

a. External equity pay comparisons focus on what other organizations

b. Internal equity pay comparisons focus on what employees within

III. Developing Pay Levels

A. An organization faces two important competitive market challenges in deciding

1. Product-market competition – the challenge to sell goods and services at a

2. Labor-market competition – the amount an organization must pay to

1. This is a philosophy that considers employees to be an investment that will

C. Deciding what to Pay

1. Deciding pay is discretionary, with a broad range. The organization has to

2. Efficiency wage theory states that wages influence worker productivity.

D. Market Pay Surveys

1. Benchmarking is a procedure by which an organization compares its own

2. Benchmarking is typically accomplished through use of pay surveys,

a. Which employers should be included in the survey?

b. Which jobs are included in the survey?

Competing Through Sustainability

3. Product-market comparisons will be more important when:

a. Labor costs represent a large share of total costs.

b. Product demand is elastic.

c. The supply of labor is inelastic.

d. Employee skills are specific to the product market.

a. Attracting and retaining employees is difficult.

b. The costs of recruiting are high.

5. As well as knowing what other organizations are paying, it is necessary to

1. Use of rate ranges permit a company to recognize differences in

F. Key jobs and nonkey jobs

2. Nonkey jobs are unique to organizations and cannot be directly valued or

Example: Typical key jobs would include administrative assistant,

IV. Developing a Job Structure

B. Job evaluation is an administrative procedure that measures a job's internal worth

1. The evaluation process is composed of compensable factors, which are

Example: One of the most popular commercial point-factor systems on the

D. Developing a Pay Structure

1. Includes examining and balancing both internal and external comparisons.

2. Three pay-setting approaches include:

a. Market survey approach - This approach has the greatest emphasis

- A pay-policy line is a mathematical expression that describes

b. Pay policy line - The second pay-setting approach combines

c. Pay grades – Group jobs into a smaller number of pay grades.

- A pay grade is grouping jobs of similar worth or content

- The range spread is the distance between the minimum and

- Disadvantages of using grades are that some jobs may be

E. Conflicts Between Market Pay Surveys and Job Evaluation

2. In resolving the conflict, emphasizing the internal data would create a

4. There are no right answers. An organization should consider its strategy

F. Monitoring Compensation Costs

2. One way to examine the difference between policy and practice is to

G. Globalization, Geographic Region, and Pay Structures

1. Pay structures can differ substantially across countries both in terms of

2. Typically, expatriate pay and benefits continue to be linked more closely