Pay Structure

10 Key excerpts on "Pay Structure"

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  Managing Employee Performance and Reward

  Concepts, Practices, Strategies

  • John Shields(Author)
  • 2007(Publication Date)
  • Cambridge University Press

    (Publisher)

  As well as coming to terms with these ways of structuring base pay, following the tenets of a ‘best fit’ approach to system design, we also seek to identify those organisational settings and management strategies for which each of these alternative structures might be most (and least) appropriate. Chapters 11 and 12 will then examine the steps involved in developing, implementing and maintaining position- and person-based systems. Two considerations are crucial to the design of any base pay system. First, what will be the system’s overall form or ‘structure’? Second, within this structure, what will be the ‘rules’ that determine how and by how much each employee’s base pay changes or progresses over time? Since the question of progression is necessarily subordinate to that of structure, it is appropriate that we begin by discussing the latter. What, exactly, is a base Pay Structure? In essence, it is the ‘architecture’ of the base pay system. A base Pay Structure has three main purposes. First, it specifies categories or classifications to which particular jobs and job- holders are assigned. Second, it specifies either the exact pay rate applicable to each position or a pay range (i.e. the minimum and maximum pay rates) for each category. Third, it establishes the criteria and mechanisms for pay progression either from rate-to-rate or within and between pay ranges. 249 250 Base pay and benefits While there are many possible permutations of base Pay Structure, most of these will approximate to one or other of four main types: 1 pay scales (or pay spines) 2 narrow grades (or job grades) 3 broad grades (or job families) 4 broad bands (or career bands). Pay scales and narrow grades are both traditional means of structuring base pay, and both are associated with the position-based approach to base pay. However, broad grades and broad bands are more recent in origin, having risen to prominence during the 1980s and 1990s.

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  Managing Employee Performance and Reward

  Concepts, Practices, Strategies

  • John Shields, Michelle Brown, Sarah Kaine, Catherine Dolle-Samuel, Andrea North-Samardzic, Peter McLean, Robyn Johns, Patrick O'Leary, Geoff Plimmer, Jack Robinson(Authors)
  • 2015(Publication Date)
  • Cambridge University Press

    (Publisher)

  As well as coming to terms with these ways of structuring base pay, following the tenets of a strategic alignment approach to system design, we also seek to identify those organisation- al settings and management strategies for which each of these alternative struc- t u r e s m i g h t b e m o s t ( a n d l e a s t ) a p p r o p r i a t e . C h a p t e r s 8 a n d 9 w i l l t h e n e x a m i n e the steps involved in developing, implementing and maintaining position- and person-based systems. ■ ■ ‘Base pay’: what and why Base pay, defined here as the part of an employee’s direct remuneration that is not performance-contingent, is the foundational component of total remuneration. It is commonly viewed as the ‘fixed’ or ‘guaranteed’ portion of pay in that it is chiefly time- based rather than performance-based. For each quantum of time worked, the em- ployee receives a predetermined amount of pay. In broad terms, time-based pay can be delivered as an hourly, daily or weekly wage, or in the form of an annual salary. It is also typically the largest component of total pay for non-executive employees. As the primary or foundational component of cash reward, base pay serves as the benchmark for other cash components, including benefits and incentive pay, which CHAPTER 7: BASE PAY PURPOSE, STRUCTURES AND OPTIONS 163 are frequently expressed as a percentage of base pay. As such, the larger the amount of base pay, the greater the likely levels of benefits and incentive payments. Some organisations, such as some real estate agencies, automotive retailers and courier firms, make little or no use of fixed remuneration, with some paying employees on a commission- or results-only basis. Also, in manufacturing employ- ees are sometimes placed on pure piece rate systems. In such cases it is a straight- forward matter to measure the results achieved by each individual or team, to put a price on each unit of output, and to pay the worker or workers accordingly.

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  Armstrong's Handbook of Reward Management Practice

  Improving Performance Through Reward

  • Michael Armstrong, Duncan Brown(Authors)
  • 2023(Publication Date)
  • Kogan Page

    (Publisher)

  The value of defining career paths in terms of knowledge and skill requirements is recognized.

  Criteria for choice

  Pay Structures should:

  • be appropriate to the culture, characteristics and needs of the organization and its employees;
  • provide the framework for grading jobs and the information that will enable them to be graded correctly;
  • facilitate the management of relativities and the achievement of equity, fairness, consistency and transparency in managing gradings and pay;
  • enable market rate comparisons to be made in order to provide guidance on levels of pay and ensure that they are competitive;
  • be flexible enough to adapt to pressures arising from market rate changes, organizational changes and skill shortages;
  • support operational flexibility and continuous development;
  • provide scope as required for pay progression, rewarding performance or merit and increases in skill;
  • clarify reward, development and career opportunities;
  • be constructed logically and clearly so that the basis upon which they operate can readily be communicated to employees;
  • enable the organization to exercise control over the implementation of pay policies and budgets;
  • avoid bias linked to gender, ethnicity or sexual orientation.

  Developing a Pay Structure

  There are three things to consider when developing a Pay Structure. First, it should be tailored to reflect the type of employer and its culture. Second, stakeholders (top management, line managers and staff) should be involved in drawing up guiding principles on the design and operation of the structure, taking into account the criteria listed above. Stakeholders should also take part in analysing the options available in order to select one that meets the guiding principles and fits the values and methods of work in the business. Third, good data is required in the form of an analysis of how the organization functions, including definitions of the distinct levels of responsibility, job analyses including information on knowledge and skill requirements at different levels in job families, and market rate information.

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  An Introduction to Human Resource Management

  • John Stredwick(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Chapter 8 , which deals with training and development.

  DESIGNING BASIC Pay StructureS

  The major part of most employees' reward is their basic remuneration. As Perkins and White have explained:

  Grading structures are the core building blocks of any organisation's human resource management system, not just for pay but often for conditions of service and career development as well. Small organisations (and even some bigger ones), however, may not have any formal organisational structure. As such, they may choose to pay their staff individual salaries or wage rates completely at management discretion (known as ‘spot rates’) based on the owner's or manager's view of each individual member of staff. But, generally, as the organisation begins to grow, the need for some sort of formal organisation, complete with job or ‘grade’ levels, becomes apparent….

  Even if a formal grading structure is not acknowledged by management or communicated to staff, in reality some sort of employee ‘hierarchy’ will usually exist. This is because few employers have complete freedom to pay individuals simply what they wish. Pay Structures are de facto created in these situations because different jobs usually attract different rates of pay according to their value in the external market because employees doing higher-level work will expect to be paid more than those doing lower-level work.

  (2008: 88)

  For individuals, the sense of fairness about their basic pay is related to three key facts. These are, firstly, the objective value they put on the nature of the job and the way they perform it; secondly, their perception of how this compares with other jobs in the organisation, especially those jobs and employees with which they are familiar; and, thirdly, how their pay compares with their perception of the ‘market rate’ for their job.

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  Managing Employee Performance and Reward

  Systems, Practices and Prospects

  • John Shields, Jim Rooney, Michelle Brown, Sarah Kaine(Authors)
  • 2020(Publication Date)
  • Cambridge University Press

    (Publisher)

  183 6 BASE PAY John Shields LEARNING OBJECTIVES After studying this chapter, you should be able to: • understand the nature and purpose of base pay as the foundational component of employee pay • discuss the difference between the two main approaches to configuring base pay: position-based base pay and person-based base pay • explain the Pay Structures, evaluation (pricing) methods and pay progression practices associated with each of these approaches • compare the strengths and weaknesses of each approach • consider base pay options and issues through the lens of employee engagement, organisational justice, workforce diversity and organisational strategy. PREVIEW A remuneration system typically comprises three main elements: base pay, benefits and performance-related pay. In designing any remuneration system careful attention should be paid to three key considerations: first, the relative role that each of these three components will play in total remuneration; second, the practices that will be drawn on to configure each component; and third, the target level of total remuneration for each position. Any discussion of remuneration practice must consider what, for most employees, is the primary component of their total remuneration, namely base pay. In this chapter, we consider the rationale for base pay, the two main options for configuring base pay – pay for job content (or position-based base pay) and pay for job-holder capabilities (or person-based base pay), the Pay Structures associated with each option, the evaluation methods and processes associated with the development of 184 | Managing Employee Performance and Reward pay systems based on each of these approaches and the and the general strengths and weaknesses of each approach. Along the way, we will also consider base pay through the lens of three of our focal themes: employee engagement, organisational justice, workforce diversity and organisational strategy.

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  Compensation

  Theory, Evidence, and Strategic Implications

  • Barry Gerhart, Sara Rynes(Authors)
  • 2003(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  4       Pay Structure     RELATIVE PAY WITHIN ORGANIZATIONS

  There is a fundamental ideological tension between the egalitarian premises that underlie participative management and the existence of large interclass reward differentials.

  —Cowherd and Levine (1992)

  Competition encourages increased effort. . . . But competition also discourages cooperation. . . . The larger is the spread between the compensation that the winner and loser receive, the more important is each of these effects.

  —Lazear (1989)

  I n the previous two chapters, we concentrated on differences in pay level across employers, where pay level is the “average” of rates paid by an employer across different jobs or skill groups (Milkovich & Newman, 1999, p. 185).1 In the present chapter, we shift our focus to Pay Structure, which refers to differences in pay within employers based on different types or levels of work or skill (Milkovich & Newman, 1999, p. 53).

  To illustrate the difference between pay level and Pay Structure concepts, consider two jobs, marketing manager and financial manager, in two different companies, but having the same job content. In Company 1, annual pay for both jobs is $85,000. However, in Company 2, the marketing manager receives $80,000, and the financial manager is paid $90,000. Under our definitions, the two organizations have the same pay level (average pay = $85,000 in both) but different Pay Structures, because the relative pay of the two jobs differs within the two organizations.

  Table  4.1  Pilot Compensation at Southwest Airlines Versus Three Major Carriers

  SOURCE: Adapted from Proctor (1999).

  As another example, consider how the Pay Structure for pilots differs across airlines. As Table 4.1

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  Strategic Human Resource Management in the Public Arena

  A Managerial Perspective

  • John Cunningham(Author)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  A raise or a bonus might be a marker of success or a form of recognition. STRATEGIC CONTEXT: An employee’s total compensation has four components: fixed salaries, pen-sions, benefits and incentives. The compensation mix is the relative proportion of compensation and varies from organization to organization. The direct forms of compensation include the fixed salaries Designing Compensation Systems to Respond to Equity Requirements 275 CO 1: USING EQUITY OBJECTIVES TO DESIGN A COMPENSATION SYSTEM This chapter’s opening vignette illustrates the many facets of pay satisfaction and points to the structure and administration of equitable pay systems. One basic hallmark for a well-designed pay system is its ‘fairness’ and acceptability to employees. Unless the compensation system is perceived to be fair, the system will breed mistrust and scepticism among employees. Few instruments of management evoke more powerful and complex emotions in an organization’s membership than the fairness of an organization’s compensation policy. Perceptions of inequity evoke dissatisfac-tion, especially if people feel that others are getting the same pay when they seem to be doing less work. Such has been the case in the inequities in what women and men have been paid throughout the world. Traditionally, compensation systems are designed to attract, retain and reward people, and in improv-ing performance, compensation was a way of aligning a person’s worth with the organization’s strategic objectives and priorities. A person’s worth or value to an organization is, theoretically, defined by his or her competence and value. In many cases, the process of determining worth has been the subject of much debate. For example, in our early history in Western societies, men and women working side by side, doing exactly the same jobs, were paid different wages. In some cases, help wanted signs listed different rates for women and men.

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  Can Pay Be Strategic?

  A Critical Exploration of Strategic Pay in Practice

  • Jonathan Trevor(Author)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Pay is not, however, the strategic lever through which behaviours and performance are leveraged as prescribed by standard theory, but is viewed as a means of supporting the achievement of local business objectives by ‘creating an environment in which performance is valued’. Pay is also viewed as an important means of fostering a shared sense of corporate identity. Company1 is a very large decentralized holding company with a relatively small corporate headquarters that acts as an umbrella organization for the myriad autonomous operating companies that comprise the whole. The contribution of pay to the creation of a shared sense of corporate identity and culture is highly valued by both senior management and line management throughout the global business. Bonus systems, where they are used, are not constructed to incentivize behaviour in the standard sense. In recognition, perhaps, of the difficul- ties of both defining and measuring individual performance, incentives in all of the operating units reviewed are linked to the achievement of business unit objectives. Individuals’ pay is at risk based upon busi- ness unit/division and not individual performance. Line management retain the discretion to alter incentive awards, post hoc, to mitigate the negative effects of non-payment in the case of poor performance. Where individual performance conditions are used, and modifiers on incentive payments are linked to business unit performance, they are typically ‘soft’ measures, which are not formalized objectives as such. From the perspective of the employee, therefore, they are incentives in the standard sense. Where paid out, incentives reinforce line manage- ment performance expectations overall and are not linked to individual performance management outcomes. Rather, they are used to foster a sense of ‘shared responsibility’ and, again, reinforce a culture of high 122 Can Pay Be Strategic? performance and commitment.

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  Managing Human Resources

  • Scott Snell, Shad Morris(Authors)
  • 2018(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  320 Part 4 Implementing Compensation and Security The way these three components of compensation are allocated sends a message to the employees about what management believes is important and the types of activities it encourages. 2 However, for an employer, compensation constitutes a sizable operating cost. Ravin Jesuthasan, compensation specialist at Towers Perrin, notes, “Labor costs are a significant portion of expenses for any organization and a very substantial portion for some, but companies continue to spend on pay programs without any evidence of business relevance.” 3 This means that compensation should be managed strategically to ensure that costs are kept down while employee motivation and performance are kept up. Achieving such a balance is no easy task. In this chapter, we will help you learn how to strategically align the three aspects of compensation with an organization’s objectives, design a pay mix based on the compen-sation strategy, implement the mix using a series of pay tools, and assess the compensa-tion system using a scorecard. We will also discuss how government regulation might influence these decisions about compensation (see Figure 9.2 for details). In Chapter 10, we will review financial incentive plans for employees. Employee benefits that are part of the total compensation package are discussed in Chapter 11. 9.2 Strategic Compensation What is strategic compensation? Simply stated, it is the compensation of employees in ways that enhance motivation and growth, while at the same time aligning their efforts with the objectives of the organization. Strategic compensation has redefined the role and perceived contribution of compensation. No longer merely a “cost of doing busi-ness,” when used strategically, compensation becomes a tool to secure a competitive advantage. Developing a compensation strategy requires that the organizational objectives are first analyzed.

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  Pay

  Why People Earn What They Earn and What You Can Do Now to Make More

  • Kevin F. Hallock(Author)
  • 2012(Publication Date)
  • Cambridge University Press

    (Publisher)

  We can help define what end results each position is accountable for, and the definitions can sharpen your management Matching the Internal Organizational Structure to the Right Market Data 83 performance. That can help you decide what ‘outstanding’ means and how much you are willing to pay for it. (Seeger, Harlan and Kotter, 1976) It turns out, in a follow-up to this case, that the people are leaving not because of money, but because Boyd hasn’t given them enough responsi- bility. It does, however, indicate that the system can create some problems while masking others. At the end of the day, I hope that the discussion in the past three chap- ters has given you a glimpse into one way that many, many organizations throughout the world pay their employees. When I first saw this, I was surprised and thought the system was too complicated, arbitrary, and for- mulaic. However, I think there are at least two important things to remember with respect to this. First, decisions have to be made about pay at some point. A formalized system is much less likely to lead to bias, inappropriate pay levels, and even discrimination. Why not write down the rules of the game in advance, as described here? Second, even if you don’t like this system, it (and variants of it) is largely how a great number of people are paid. And even if your organization doesn’t do this, so many do that they influence the rest of organizations in a meaningful way. Therefore, it is certainly worth- while understanding it, especially if you are one who may be designing pay systems yourself, or even if you are a person who wants to make more in your own job. EIGHT Paying Executives, Athletes, Entertainers, and Other “Superstars” The issue of executive compensation has become increasingly controversial in the past years, not just in the Unites States but throughout the world.

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