HC12 Establishing a Pay Structure

A planned approach for establishing employees’ pay will likely result in unfairness, dissatisfaction, and rates that are either overly expensive or so low that positions are hard to fill.

• True

• False

Answer explanation

An unplanned approach, in which each employee’s pay is independently negotiated, will likely result in unfairness, dissatisfaction, and rates that are either overly expensive or so low that positions are hard to fill.

Andrew is 14 years old and has been offered an after school job. Andrew will not be able to accept the job since he is too young to hold a job while in school.

• True

• False

Answer explanation

Children aged 14 and 15 may work only outside school hours in jobs defined as nonhazardous and for limited time periods.

By defining key jobs, organizations can make the process of creating a pay structure more practical.

• True

• False

Answer explanation

Organizations can make the process of creating a pay structure more practical by defining key jobs.

Peter’s employer has recently performed a benchmarking procedure, thereby reducing the number of levels in the organization.

• True

• False

Answer explanation

Delayering is reducing the number of levels in an organization’s job structure.

It establishes relative pay among different functions and different levels of responsibility.

• Job structure

• Job evaluation

• Pay structure

• Delayering

Jose is the CEO of a software firm. He is of the opinion that it is fair to pay above the market rate if doing so can help his firm attract and retain top talent. He knows that these employees will make the company more innovative and that they will also contribute significantly to the product quality and productivity. Which statement best supports his view?

• Since Jose drawa very high pay, he considers it appropriate to pay his employees above the market rate.

• Paying above the market rate will make Jose’s organization more competitive in the product markets, even though his firm will be at a disadvantage in the labor markets.

• Jose considers his employees as resources, and therefore, considers the higher pay an investment in superior human resources.

• Jose has taken the economic forces into account and decides that it is fair for his employees to be paid higher than the market rate.

Answer explanation

When organizations have a broad range in which to make decisions about pay, they can choose to pay at, above, or below the rate set by market forces. An organization may gain an advantage by paying above the market rate if it uses the higher pay as one means to attract top talent and then uses these excellent employees’ knowledge to be more innovative, produce higher quality, or work more efficiently.

The ways employees respond to their impressions about equity can have a great impact on the

• organization.

• labor market.

• economy

• labor cost.

Answer explanation

The ways employees respond to their impressions about equity can have a great impact on the organization. If employees see their pay as equitable, their attitudes and behavior continue unchanged. If employees see themselves as receiving an advantage, they usually rethink the situation to see it as merely equitable. But if employees conclude that they are under-rewarded, they are likely to make up the difference.

Patterson Productions, a manufacturing company, requires employees to continually widen and deepen their knowledge. It has a pay structure that sets pay according to the employees’ abilities or knowledge and what they are capable of doing. Which pay structure is being exemplified in this scenario?

• straight piecework plan

• skill-based pay system

• merit pay system

• quality-based pay system

Answer explanation

Skill-based pay systems are pay structures that set pay according to the employees’ level of skill or knowledge and what they are capable of doing. Paying for skills makes sense at organizations where changing technology requires employees to continually widen and deepen their knowledge.

Pedal People, a chain of car dealerships in the North, has a service center at each location, each managed by an experienced mechanic. For technicians, it hires high school graduates and trains them to repair cars and deliver great customer service. The more kinds of repairs a technician can perform, the more valuable that employee becomes to the company. Which pay structure would best motivate technicians to become more valuable contributors to Pedal People?

• job-based pay structure

• merit pay structure

• delayering of the job structure

• skill-based pay structure

Answer explanation

Skill-based pay systems are pay structures that set pay according to the employees’ level of skill or knowledge and what they are capable of doing. Paying for skills makes sense at organizations where changing technology requires employees to continually widen and deepen their knowledge.

In most organizations, only a small fraction of the employees are executives, yet employees and others often consider executive pay when evaluating the equity of a company’s pay structure. Which statement is a reason why executive pay draws this attention?

• Executive pay ranges tend to be very close to the pay levels of the other employees.

• Employees at all levels are affected by executives’ actions.

• Customers are usually more satisfied when executives earn much more than other employees.

• Front-line workers set the tone or culture of the organization.

Answer explanation

Top executives help to set the tone or culture of the organization, and employees at all levels are affected by behavior at the top. As a result, the equity of executive pay can affect more employees than, say, equity among warehouse workers or salesclerks.