Decisions Relating to Pay Structure

Pay Structure Concepts and Consequences: Equity Theory and Fairness

There are 2 areas of decisions relating to pay structure that needs to be looked into:

PAY STRUCTURE DECISION AREA ADMINISTRATIVE TOOL FOCUS OF EMPLOYEE PAY COMPARISONS CONSEQUENCES OF EQUITY PERCEPTIONS
Pay level Market pay surveys External equity External employee movement, labor costs, employee attitudes
Job structure Job evaluation Internal equity Internal employee movement, cooperation, employee attitudes

 Decisions Relating to Pay Structure

Top management makes the decision on the pay policy line as well as decisions on guidelines required in the building of the salary structure. The guidelines cover:

  • The minimum and maximum pay levels.
  • The general relationships among the levels of pay
  • The division of the total compensation budget.
  • The extent to which compensation policies are communicated.
  • Whether compensation policy is open or secret.

To develop these guidelines for approval by the top management, the compensation and benefits expert has to first answer these questions:

  • What is the lowest rate that can be offered for a job that will entice the quality of employees the firm wants?
  • What is the rate of pay that must be offered to incumbents to ensure that they stay with the firm?
  • Should seniority be recognized through the base-pay schedule?
  • Should meritorious performance be recognized through the base-pay schedule?
  • Should there be more than one rate of pay for employees performing either identical or similar work?
  • What is considered to be a sufficient difference in base rates of pay among jobs requiring varying levels pf knowledge, skills, responsibilities, and duties?
  • Should dangerous working conditions be recognized within the base-pay schedule?
  • Should there be a difference in changes in base-pay progression opportunities among jobs of varying worth?
  • Is there opportunity to progress to higher-level jobs?
  • How does promotion affect base pay?
  • Should the incumbents be allowed to earn pay higher than established maximums or lower than established minimums?
  • How will the pay structure accommodate across-the-board cost-of-living or other adjustments not related to seniority, performance, or job change?

Source: The Library Compensation Handbook: A Guide for Administrators, Librarians written by David Allen Baldwin

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