fundamentals of

Human Resource Management 4th edition

by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 9
Developing Employees for Future
Success

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.
 What Do I Need to Know?

1. Discuss how development is related to training

and careers.
2. Identify the methods organizations use for
employee development.
3. Describe how organizations use assessment of
personality type, work behaviors, and job
performance to plan employee development.
4. Explain how job experiences can be used for
developing skills.

9-2
 What Do I Need to Know? (continued)

5. Summarize principles of successful mentoring

programs.
6. Tell how managers and peers develop
employees through coaching.
7. Identify the steps in the process of career
management.
8. Discuss how organizations are meeting the
challenges of the “glass ceiling,” succession
planning, and dysfunctional managers.

9-3
 Introduction

• Employee development: the combination of

formal education, job experiences,
relationships, and assessment of personality
and abilities to help employees prepare for
the future of their careers.
• Development is about preparing for change in
the form of new jobs, new responsibilities, or
new requirements.

9-4
Table 9.1: Training versus Development

9-5
 Test Your Knowledge
• Significant Developments: True (A) or False (B)?
– There are more horizontal “ladders” in middle
management than upward moves.
– Companies focus on employee’s career steps rather than
their core competencies.
– Careers are now more a series of projects, rather than
upward steps in an organization
– Career development primarily applies to managers.
– The organization manages employee’s careers more so
than the individual.
– The average 32-year old has already worked for 7 different
firms.

9-6
 Development for Careers

• Protean career: a career that frequently

changes based on changes in the person’s
interests, abilities, and values and in the work
environment.
• To remain marketable, employees must
continually develop new skills.

9-7
 Test Your Knowledge

• An employee starts out as a sales person, then

becomes an account manager, gets promoted
to sales manager, and is now VP of Sales.
Which type of career did this employee have?
A. Protean
B. Traditional
C. Glass ceiling
D. Dead end

9-8
Figure 9.1: Four Approaches to Employee
Development

9-9
 Approaches to Employee Development

Formal Education Assessment

• These may include: • Collecting information and
– Workshops providing feedback to
– Short courses employees about heir
– Lectures behavior, communication
– Simulations style, or skills.
– Business games • Information for assessment
– Experiential programs may come from the
• Many companies operate employees, their peers,
training and development managers, and customers.
centers.

9-10
One way to develop employees is to begin
with an assessment which may consist of
assigning an activity to a team and seeing
who brings what skills and strengths to the
team.
9-11
 Assessment Tools

Myers-Briggs Type Indicator (MBTI)®

Assessment Centers

Benchmarks Assessment

Performance Appraisal

360-Degree Feedback
9-12
 Assessment Tools:
Myers-Briggs Type Indicator (MBTI)®
• It is a psychological test • This is the most popular
that identifies test for employee
individuals’ preferences development.
for source of energy,
means of information • The assessment consists
gathering, way of of more than 100
decision making, and questions about how the
lifestyle, providing person feels or prefers to
information for team behave in different
building and leadership situations.
development.

9-13
 Assessment Tools (continued)
Assessment Centers
• An assessment process in
which multiple raters or
evaluators (assessors)
evaluate employees’
performance on a number
of exercises, usually as they
work in a group at an offsite
location.
Benchmarks
• A measurement tool that
gathers ratings of a
manager’s use of skills
associated with success in
managing.
9-14
Table 9.2: Skills Related to Success as a
Manager

9-15
 Assessment Tools (continued)
• Performance appraisals can be useful for
employee development under certain conditions:
1. The appraisal system must tell employees specifically
about their performance problems and ways to
improve their performance.
2. Employees must gain a clear understanding of the
differences between current performance and
expected performance.
3. The appraisal process must identify causes of the
performance discrepancy and develop plans for
improving performance.

9-16
 Assessment Tools (continued)

• 360-degree feedback can be used for development

purposes:
1. The rater would identify an area of behavior as a
strength of the employee or an area requiring further
development.
2. The results presented to the employee show how he or
she was rated on each item and how self-evaluations
differ from other raters’ evaluations.
3. The individual reviews the results, seeks clarification
from the raters, and sets specific development goals
based on the strengths and weaknesses identified.

9-17
 Test Your Knowledge

• Sarah participated in leaderless group

discussions and in-basket exercises and was
observed by a number of raters. Which
assessment method was used for Sarah?
A. Interview
B. Performance appraisal
C. Assessment Center
D. Coaching

9-18
 Approaches to Employee Development
(continued)

• Job experiences: the • Key job experience

combination of
relationships, problems,
demands, tasks, and
other features of an
employee’s jobs.
• Through these
• Most employee
development occurs
through job experiences.
events include:
– Job assignments
– Interpersonal
relationships
– Types of transitions
experiences, managers
learn how to handle
common challenges, and
prove themselves.

9-19
 Figure 9.2: How Job Experiences Are Used
for Employee Development

9-20
Working outside one’s home country is the
most important job experience that can
develop an employee for a career in the
global economy.

9-21
 Approaches to Employee Development
(continued)

• Interpersonal relationships: employees can

also develop skills and increase their
knowledge about the organization and its
customers by interacting with a more
experienced member:
– Mentoring
– Coaching

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 Figure 9.3: Steps and Responsibilities in
the Career Management Process

9-23
 Test Your Knowledge

• Phyllis is in the process of understanding what

possibilities exist for her within the
organization based on her strengths and
developmental areas. Which phase of the
career management process is she in?
A. Self Assessment
B. Reality Check
C. Goal Setting
D. Action Planning

9-24
 Career Management System (continued)
Data Gathering:
Feedback
Self-Assessment
• Information employers give
• The use of information by
employees about their skills
employees to determine
and knowledge and where
their career interests,
these assets fit into the
values, aptitudes,
organization’s plans.
behavioral tendencies, and
development needs.
• MBTI
• Strong-Campbell Interest
Inventory
• Self-Directed Search
9-25
Figure 9.4: Sample Self-Assessment
Exercise

9-26
 Career Management System (continued)
Goal Setting
• Based on the information
from the self-assessment
and reality check, the
employee sets short- and
long-term career objectives.
– Desired positions
– Level of skill to apply
– Work setting
– Skill acquisition
Action Planning & Follow-
Up
• Employees prepare an
action plan for how they will
achieve their short- and
long-term career goals.
• Any one or a combination of
development methods may
be used.
• Approach used depends on
the particular development
need and career objectives.
9-27
Figure 9.5: Career Development Plan

9-28
 Development-Related Challenges

Succession Dysfunctional
Glass Ceiling
Planning Managers
• Circumstances • The process of • A manager who
resembling an identifying and is otherwise
invisible barrier tracking high- competent may
that keep most potential engage in some
women and employees who behaviors that
minorities from will be able to fill make him or her
attaining the top top management ineffective or
jobs in positions when even “toxic” –
organizations. they become stifles ideas and
vacant. drives away good
employees.

9-29
• Indra Nooyi became the first woman CEO of
PepsiCo in 2006.
• Her success at the company gives her the
distinction of being one of the women to break
through the glass ceiling.

9-30
Figure 9.6:
Process for
Developing a
Succession Plan

9-31
 Dysfunctional Managers

• A manager who is • These dysfunctional

otherwise competent behaviors include:
may engage in some – insensitivity to others
behaviors that make – inability to be a team
him or her ineffective – player
– arrogance
someone who stifles
– poor conflict management
ideas and drives away skills
employees. – inability to meet business
objectives
– inability to adapt to change

9-32
 Dysfunctional Managers (continued)

• When a manager is an otherwise valuable employee

and is willing to improve, the organization may try to
help him or her change the dysfunctional behavior:
– Assessment
– Training
– Counseling
• Specialized programs include Individual Coaching for
Effectiveness (ICE)
– This includes diagnosis, coaching, and support activities
tailored to each manager’s needs.

9-33
 Summary

• Employee development is the combination of formal

education, job experiences, relationships, and
assessment of personality and abilities to help
employees prepare for the future of their careers.
• Training is more focused on improving performance
in the current job, but training programs may
support employee development.

9-34
 Summary (continued)

• In modern organizations, the concept of a career is

fluid – a protean career that changes along with
changes in a person’s interests, abilities, and values
and changes in the work environment.
• To plan and prepare for a protean career requires
active career management, which includes planning
for employee development.
• Assessment can help the organization identify
employees with managerial potential or identify
areas in which teams need to develop.

9-35
 Summary (continued)
• Assessment centers combine a variety of methods to
provide assessment information. Managers must
share the assessments, along with suggestions for
improvement.
• Job experiences contribute to development through
a combination of relationships, problems, demands,
tasks, and other features of an employee’s jobs.
• Organizations can ensure that women and minority
employees receive access to development resources
such as coaches and mentors.

9-36
 Summary (continued)

• Effective succession planning includes methods for

selecting high-potential employees, providing them
with developmental experiences, and getting the
CEO actively involved with these employees.
• For dysfunctional managers who have the potential
to contribute to the organization, the organization
may offer development targeted at correcting the
areas of dysfunction.

9-37
 fundamentals of
Human Resource Management 4th edition
by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 10
Separating and Retaining
Employees

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.
 What Do I Need to Know?

1. Distinguish between involuntary and

voluntary turnover, and describe their effects
on an organization.
2. Discuss how employees determine whether
the organization treats them fairly.
3. Identify legal requirements for employee
discipline.

9-39
 What Do I Need to Know? (continued)

4. Summarize ways in which organizations can

fairly discipline employees.
5. Explain how dissatisfaction affects employee
behavior.
6. Describe how organizations contribute to
employees’ job satisfaction and retain key
employees.

9-40
 Introduction

• Every organization recognizes that it needs

satisfied, loyal customers.
• In addition, success requires satisfied, loyal
employees.
• Research provides evidence that retaining
employees helps retain customers and
increase sales.
• Organizations with low turnover and satisfied
employees tend to perform better.

9-41
 Managing Turnover

• What was the primary reason you’ve ever quit

a job?
a) I Didn’t like my boss or coworkers
b) I wasn’t a fit with the company culture
c) Better pay somewhere else
d) More interesting or challenging work
somewhere else
e) I was fired or laid off
f) Other

9-42
 Managing Voluntary and
Involuntary Turnover
Involuntary Turnover Voluntary Turnover
• Turnover initiated by an • Turnover initiated by
employer. employees.
• Often with employees • Often when the
who would prefer to stay. organization would prefer
to keep them.

9-43
Table 10.1: Costs Associated with Turnover

9-44
 Test Your Knowledge

True (A) or False (B)

1.A manager who decides to fire an employee
should quietly take action alone and then let
others know afterwards.
2.Separating employees has financial and
personal risks.

9-45
 Employee Separation

• Organizations must develop a standardized,

systematic approach to discipline and discharge.
• These decisions should not be left solely to the
discretion of individual managers or supervisors.
• Policies should be based on principles of justice
and law.
• Policies should allow for various ways to
intervene.

9-46
 Principles of Justice

Outcome Procedural Interactional

Fairness Justice Justice
• A judgment • A judgment • A judgment
that the that fair that the
consequences methods were organization
given to used to carried out its
employees are determine the actions in a
just. consequences way that took
an employee the employee’s
receives. feelings into
account.

9-47
Figure 10.1: Principles of Justice

9-48
 Test Your Knowledge

• A company whose earnings are very low has to reduce

the amount given in raises to avoid laying people off.
The amount of the raise for each employee is
determined objectively based on their performance.
An employee working for this company will most likely
feel ____________ and _________________.
a) High outcome fairness; high interactional injustice
b) Low outcome fairness; high procedural justice
c) Low interactional justice, high outcome fairness
d) Low outcome fairness, low procedural justice

9-49
 Legal Requirements

Wrongful Discharge Discrimination

• The discharge may not • Employers must make
violate an implied discipline decisions without
agreement.
regard to a person’s age,
– e.g., employer had promised
job security sex, race, or other protected
– e.g., the action is inconsistent status.
with company rules
• Evenhanded, carefully
• The discharge may not
documented discipline can
violate public policy.
– e.g., terminating the avoid such claims.
employee for refusing to do
something illegal or unsafe.

9-50
 Legal Requirements (continued)

Employees’ Privacy:
• Employers need to ensure that the
information they gather and use for discipline
is relevant.
• Privacy issues also concern the employer’s
wish to search or monitor employees.
• Employers must be prudent in deciding who
will see the information.

9-51
Organizations such as
day care facilities and
schools must protect
employees’ right to
privacy in their lives and
on the job while
balancing the need to
protect children from
harm.

9-52
Table 10.2: Measures for Protecting
Employees’ Privacy

9-53
 Test Your Knowledge
• Pam Jones worked for 41 years at the same company and had
positive performance ratings and personnel records. She
needed a calculator for work which she purchased with her
own money but was not reimbursed because she lost the
receipt. Later, a security guard stopped her as she was leaving
work and discovered the calculator in her belongings. After a
brief internal investigation, she was fired and it was
announced through internal notices that she had committed a
theft. The employee sued for libel, saying the company used
her as an example to prevent other thefts.
A. What are the key issues in this case?
B. As an HR Director, how would you have handled this case?

9-54
 Legal Requirements (continued)

Notification of Layoffs:
• Organizations that plan broad-scale layoffs
may be subject to the Workers’ Adjustment,
Retraining and Notification Act (WARN).
• Employers covered by the law are required to
give notice before any closing or layoff.

9-55
 Test Your Knowledge

• After hiring Bob for a newly created marketing

specialist position, his boss assures him that he will
be secure in the job until he retires. A year later, that
department is eliminated. Bob complains he was
guaranteed employment until retirement. Is he
right?
a) No, an employer can hire or fire someone whenever they
want.
b) No, there was no written contract.
c) Yes, he was given a verbal contract.

9-56
 Progressive Discipline

Hot-Stove Rule Progressive Discipline

• Principle of discipline • A formal discipline
that says discipline process in which the
should be like a hot consequences become
stove, giving clear more serious if the
warning and following employee repeats the
up with consistent, offense.
objective, and
immediate
consequences.

9-57
Figure 10.2: Progressive Discipline
Responses

9-58
 Progressive Discipline (continued)

• The rules of behavior • Tardiness

should cover • Absenteeism
disciplinary problems • Unsafe work practices
such as the following • Poor quantity or quality of
work
behaviors encountered
• Sexual harassment of
in many organizations:
coworkers
• Coming to work impaired by
alcohol or drugs
• Theft of company property
• Cyberslacking

9-59
Figure 10.3: Typical
Stages of Alternative
Dispute Resolution
Alternative dispute
resolution (ADR) –
methods of solving a
problem by bringing in
an impartial outsider
but not using the
court system.

9-60
 Alternative Dispute Resolution

Open-Door Policy Peer Review

• An organization’s policy • Process for resolving
of making managers disputes by taking them
available to hear to a panel composed of
complaints. representatives from
the organization at the
same levels as the
people in the dispute.

9-61
 Alternative Dispute Resolution (continued)

Mediation Arbitration
• Nonbinding process in • Binding process in
which a neutral party which a professional
from outside the arbitrator from outside
organization hears the the organization
case and tries to help (usually a lawyer or
the people in a conflict judge) hears the case
arrive at a settlement. and resolves it by
making a decision.

9-62
 Employee Assistance Programs

• Employee assistance program (EAP) – a

referral service that employees can use to
seek professional treatment for emotional
problems or substance abuse.
• Many EAPs are fully integrated into employers’
overall health benefits plans.

9-63
 Outplacement Counseling

• Outplacement counseling – a service in which

professionals try to help dismissed employees
manage the transition from one job to
another.
• The goals for outplacement counseling are to
help the former employee address the
psychological issues associated with losing a
job while at the same time helping the person
find a new job.
9-64
 Job Withdrawal

• Job Withdrawal – a set of behaviors with

which employees try to avoid the work
situation physically, mentally, or emotionally.
• Job withdrawal results when circumstances
such as the nature of the job, supervisors and
coworkers, pay levels, or the employee’s own
disposition cause the employee to become
dissatisfied with the job.

9-65
Figure 10.4: Job Withdrawal Process

9-66
 The Causes of Job Dissatisfaction

Personal • Negative affectivity

Dispositions • Core self-evaluations

• Role
• Role ambiguity
Tasks and Roles • Role conflict
• Role overload

Supervisors and • Negative behavior by managers

Coworkers • Conflicts between employees

• Pay is an indicator of status in the organization

Pay and Benefits • Pay and benefits contribute to self-worth

9-67
• Military reservists who
are sent overseas often
experience role conflict
among three roles:
1. soldier
2. family member
3. civilian employee
• Overseas assignments
often intensify role
conflicts.

9-68
Actions Employees Take When Dissatisfied

• Behavior changes
– Change the condition
– Whistle-blowing
– Bring a lawsuit
– Lodge complaints
• Physical job withdrawal
• Psychological withdrawal
– Decrease in job involvement
– Decrease in organizational commitment
9-69
Unpleasant Employees Are Bad for
Business

9-70
 Job Satisfaction
• Job satisfaction – a pleasant feeling resulting from
the perception that one’s job fulfills or allows for the
fulfillment of one’s important job values.
• The three important components are:
– Values
– Perceptions
– Ideas of what is important
• People will be satisfied with their jobs as long as they
perceive that their jobs meet their important values.

9-71
Figure 10.5: Increasing Job Satisfaction

9-72
 Appropriate tasks
and roles include
safety precautions,
especially when
work could involve
risks to workers’
health and safety.

9-73
Figure 10.6:
Steps in the Role
Analysis Technique
Role analysis
technique: A process
of formally identifying
expectations
associated with a role.

9-74
Job Satisfaction:
Supervisors and Co-workers
• The two primary people in an organization who
affect job satisfaction are co-workers and supervisors.
• A person may be satisfied with these people for one
of three reasons:
1. The people share the same values, attitudes, and
philosophies.
2. The co-workers and supervisor may provide social
support, meaning they are sympathetic and caring.
3. The co-workers or supervisor may help the person attain
some valued outcome.

9-75
 Co-worker relationships can contribute to job
satisfaction, and organizations therefore try to
provide opportunities to build positive
relationships.

9-76
 Test Your Knowledge

• Serena feels her job processing payroll checks

is boring and uninteresting. Which
intervention would be most appropriate to
retain Serena?
a) Communicating the companies values
b) Increasing her pay
c) Expanding her job
d) Hiring someone she can chat with during the day

9-77
 Monitoring Job Satisfaction

• Employers can better retain employees if they are

aware of satisfaction levels, so they can make
changes if employees are dissatisfied.
• The usual way to measure job satisfaction is with
some kind of survey.
• A systematic, ongoing program of employee surveys
should be part of the organization’s human resource
strategy.
• This allows the organization to monitor trends and
prevent voluntary turnover.
9-78
Figure 10.7: Example of Job Descriptive
Index (JDI)

9-79
Figure 10.8: Example of a Simplified,
Nonverbal Measure of Job Satisfaction

9-80
 Exit Interview

• Exit interview: a meeting of a departing

employee with the employee’s supervisor and/or
a human resource specialist to discuss the
employee’s reasons for leaving.
• A well-conducted exit interview can uncover
reasons why employees leave.
• When several exiting employees give similar
reasons for leaving, management should consider
whether this indicates a need for change.

9-81
 Summary

• Involuntary turnover occurs when the organization

requires employees to leave, often when they would
prefer to stay.
• Voluntary turnover occurs when employees initiate
the turnover, often when the organization would
prefer to keep them.
• Both are costly because of the need to recruit, hire,
and train replacements.
• Involuntary turnover can also result in lawsuits and
even violence.
9-82
 Summary (continued)

• Employees draw conclusions based on the outcomes

of decisions regarding them, the procedures applied,
and the way managers treat employees when
carrying out those procedures.
• Employee discipline should not result in wrongful
discharge, such as a termination that violates an
implied contract or public policy.
• Discipline should be administered evenhandedly,
without discrimination.

9-83
 Summary (continued)
• Discipline should follow the principles of the hot-
stove rule, meaning discipline should give warning
and have consequences that are consistent,
objective, and immediate.
• A system that can meet these requirements is
progressive discipline, in which rules are established
and communicated, and increasingly severe
consequences follow each violation of the rules.
• Organizations may also resolve problems through
alternative dispute resolution.

9-84
 Summary (continued)

• Circumstances involving the nature of a job,

supervisors and coworkers, pay levels, or the
employee’s own disposition may produce job
dissatisfaction. When employees become
dissatisfied, they may engage in job withdrawal.
• To prevent job withdrawal, organizations need to
promote job satisfaction.
– Job satisfaction is related to a person’s values.
– Different employees have different views of which values
are important.
– Job satisfaction is based on perception.
9-85
 fundamentals of
Human Resource Management 4th edition
by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 11
Establishing a Pay Structure

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.
 What Do I Need to Know?

1. Identify the kinds of decisions involved in

establishing a pay structure.
2. Summarize legal requirements for pay
policies.
3. Discuss how economic forces influence
decisions about pay.
4. Describe how employees evaluate the
fairness of a pay structure.

9-87
 What Do I Need to Know? (continued)

5. Explain how organizations design pay

structures related to jobs.
6. Describe alternatives to job-based pay.
7. Summarize how to ensure that pay is actually
in line with the pay structure.
8. Discuss issues related to paying employees
serving in the military and paying executives.

9-88
 Your Opinion

1-Strongly Disagree, 3-Neutral, 5- Strongly Agree

1.Pay decisions should be based on
performance, not seniority.
2.I would like to know what my coworkers get
paid.
3.I would not mind if others knew my salary.
4.Pay secrecy helps a company stay competitive.

9-89
 Introduction

• Pay is a powerful tool for meeting the

organization’s goals.
• Pay has a large impact on employee attitudes
and behaviors.
• It influences the kinds of people who are
attracted to (or remain with) the organization.
• Employees attach great importance to pay
decisions when they evaluate their
relationship with their employer.

9-90
 Decisions About Pay

Job Structure Pay Level Pay Structure

• The relative • The average • The pay

pay for amount the policy
different organization resulting
jobs within pays for a from job
the particular structure
organization. job. and pay-
level
decisions.

9-91
Figure 11.1:
Issues in Developing a Pay Structure

9-92
 Legal Requirements for Pay

Equal employment opportunity

Minimum wages

Pay for overtime

Prevailing wages for federal contractors

9-93
Legal Requirements for Pay:
Equal Employment Opportunity
• Employers must not base differences in pay on
an employee’s age, sex, race, or other
protected status.
• Any differences in pay must be tied to such
business-related considerations as job
responsibilities or performance.
• The goal is for employers to provide equal pay
for equal work.

9-94
• Two employees who do the
same job cannot be paid
different wages because of
gender, race, or age.
• It would be illegal to pay
these two employees
differently because one is
male and the other is
female.
• Only if there are differences
in their experience, skills,
seniority, or job
performance are there legal
reasons why their pay might
be different.

9-95
Legal Requirements for Pay:
Minimum Wage
• Minimum wage – the • Fair Labor Standards
lowest amount that Act (FLSA) – federal law
employers may pay that establishes a
under federal or state minimum wage and
law, stated as an requirements for
amount of pay per hour. overtime pay and child
labor.

9-96
 Minimum Wage (continued)

• At the federal level, the FLSA establishes a

minimum wage of:
– $7.25 per hour as of July 2009
• The FLSA also permits a lower “training wage”
– paid to workers under the age of 20 for up to 90
days
– approximately 85 percent of the minimum wage

9-97
Legal Requirements for Pay:
Overtime Pay
• The overtime rate under the FLSA is 1½ times
the employee’s usual hourly rate, including
any bonuses, and piece-rate payments.
• Exempt employees – managers, outside
salespeople, and other employees not covered
by the FLSA requirement for overtime pay.
• Nonexempt employees – employees covered
by the FLSA requirements for overtime pay.

9-98
Figure 11.2: Computing Overtime Pay

9-99
 Overtime Pay (continued)

Overtime pay is required, whether or not the

employer specifically asked or expected the
employee to work more than 40 hours.

Thus, if the employer knows the employee is

working overtime but does not pay time and
a half, the employer may be violating the
FLSA.
9-100
Legal Requirements for Pay:
Child Labor
• Children aged 16 and 17 may not be employed in
hazardous occupations defined by the U.S.
Department of Labor.
• Children aged 14 and 15 may work only outside
school hours, in jobs defined as nonhazardous, and
for limited time periods.
• A child under age 14 may not be employed in any
work associated with interstate commerce.
• Exemptions include baby-sitting, acting, and
delivering newspapers.
9-101
Legal Requirements for Pay:
Prevailing Wages
• Two federal laws govern pay policies of federal
contractors:
– Davis-Bacon Act of 1931
– Walsh-Healy Public Contracts Act of 1936
• Under these laws, federal contractors must
pay their employees at rates at least equal to
the prevailing wages in the area.

9-102
 Economic Influences on Pay
Product Markets
• The organization’s product
market includes
organizations that offer
competing goods and
services.
• Organizations compete on
quality, service, and price.
• The cost of labor is a
significant part of an
organization’s costs.
Labor Markets
• Organizations must
compete to obtain human
resources in labor markets.
• Competing for labor
establishes the minimum an
organization must pay to
hire an employee for a
particular job.
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• There is currently a strong demand for nurses in
the labor market.
•Hospitals will have to pay competitive wages and
other perks to attract and retain staff.

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Tech Workers Out-Earn Managers

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Pay Level: Deciding What to Pay

Pay at the rate set by the market

Pay at a rate above the market

Pay at a rate below the market

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 Gathering Information About Market Pay

• Benchmarking – a • Bureau of Labor

procedure in which an Statistics (BLS)
organization compares
its own practices • Society for Human
against those of Resource Management
successful competitors (SHRM)
• Pay surveys • WorldatWork
• Trade and industry
groups
• Professional groups

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Employee Judgments About Pay Fairness

• Employees compare their pay and

contributions against three yardsticks:
1. What they think employees in other
organizations earn for doing the same job.
2. What they think other employees holding
different jobs within the organization earn for
doing work at the same or different levels.
3. What they think other employees in the
organization earn for doing the same job as
theirs.
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Figure 11.3: Opinions About Fairness –
Pay Equity

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 Pay Equity (continued)
• If employees conclude that they are under-rewarded,
they are likely to make up the difference in one of
three ways:
1. They might put forth less effort (reducing their inputs).
2. They might find a way to increase their outcomes (e.g.,
stealing).
3. They might withdraw (by leaving the organization or
refusing to cooperate).
• Employees’ beliefs about fairness also influence their
willingness to accept transfers or promotions.

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 Test Your Knowledge

• Mariah found out that a friend of hers with a

similar job in the same town makes significantly
more money than she does. Which of the
following is probably not the cause of this?
a) Different cost-of-living
b) The companies are in different product markets
with different pay strategies
c) Mariah is a poor performer
d) Mariah’s job is non-exempt

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 Job Structure: Relative Value of Jobs

Job Evaluation Compensable Factors

• An administrative • The characteristics of a
procedure for job that the
measuring the relative organization values and
internal worth of the chooses to pay for.
organization’s jobs. – Experience
– Education
– Complexity
– Working conditions
– Responsibility

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Table 11.1: Job Evaluation of Three Jobs
with Three Compensable Factors

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 Job Structure: Defining Key Jobs

• Key Jobs – jobs that have relatively stable

content and are common among many
organizations.
• Organizations can make the process of
creating the job structure and the pay
structure more practical by defining key jobs.
• Research for creating the pay structure is
limited to the key jobs that play a significant
role in the organization.

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Pay Structure: Putting It All Together

Job Job Define

Evaluation Structure Key Jobs

Pay Policy Pay

Pay Rates
Line Survey

Pay Pay Pay

Grades Ranges Structure
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 Pay Rates

Organization obtains pay survey data

for its key jobs.

Pay policy line is established.

Pay rates for non-key jobs are then

determined.
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Figure 11.4: Pay
Policy Lines
Pay policy line – a
graphed line showing
the mathematical
relationship between
job evaluation points
and pay rate.

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Figure 11.5:
Sample Pay
Grade Structure
Pay grades – sets
of jobs having
similar worth or
content, grouped
together to
establish rates of
pay.

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 Pay Ranges

• Pay ranges – a set of • Red-circle rate – pay at

possible pay rates a rate that falls above
defined by a minimum, the pay range for the
maximum, and job.
midpoint of pay for • Green-circle rate – pay
employees holding a at a rate that falls below
particular job or a job the pay range for the
within a particular pay job.
grade.

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 Test Your Knowledge

• To correct a Red-circled employee, I would…

a) Give them a raise
b) Demote them
c) Give them a bonus, but no raise
d) Move them to a job with a higher pay range

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 Pay Differentials

• Pay differential – adjustment to a pay rate to

reflect differences in working conditions or
labor markets.
• Many businesses in the United States provide
pay differentials based on geographic location.
• The most common approach is to move an
employee higher in the pay structure to
compensate for higher living costs.

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• Night hours are less desirable for most workers.
• Therefore, some companies pay a differential for
night work to compensate them.

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 Alternatives to Job-Based Pay
Delayering
• Reducing the number of
levels in the organization’s
job structure.
• More assignments are
combined into a single layer.
• These broader groupings
are called broad bands.
• More emphasis on
acquiring experience, rather
than promotions.
Skill-Based Pay Systems
• Pay structures that set pay
according to the employees’
levels of skill or knowledge
and what they are capable
of doing.
• This is appropriate in
organizations where
changing technology
requires employees to
continually widen and
deepen their knowledge.
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Figure 11.6:
IBM’s New Job Evaluation Approach

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 Pay Structure and Actual Pay

• Pay structure represents the organization’s

policy.
• However, what the organization actually does
may be different.
• The HR department should compare actual
pay to the pay structure, making sure that
policies and practices match.
• Compa-ratio is the common way to do this.

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Figure 11.7: Finding a Compa-Ratio

• Compa-Ratio (CR) – the

ratio of average pay to the
midpoint of the pay range.
• If the average equals the
midpoint, CR is 1.
• If CR is greater than 1, the
average pay is above the
midpoint.
• IF CR is less than 1, the
average pay is below the
midpoint.

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 Current Issues in Pay

• Pay During Military Duty

– How should companies handle employees who
are called for active duty in the military for
extended time periods?
– The Uniformed Services Employment and
Reemployment Rights Act (USERRA)
• Pay for Executives
– Based on equity theory, how does executive
compensation affect employees?

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Figure 11.8: Average CEO Pay in S&P 500
Companies

Bonus

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 Summary

• Organizations make decisions to define a job

structure, or relative pay for different jobs within the
organization. Organizations also must establish pay
levels, or the average paid for the different jobs.
• These decisions are based on the organization’s
goals, market data, legal requirements, and
principles of fairness.
• Together, job structure and pay level establish a pay
structure policy.

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 Summary

• To meet the standard of equal employment

opportunity, employers must provide equal pay for
equal work, regardless of an employee’s age, race,
sex, or other protected status.
• Differences in pay must relate to factors such as a
person’s qualifications or market levels of pay.
• Under the Fair Labor Standards Act (FLSA):
• The employer must pay at least the minimum wage
established by law.
• Overtime pay for hours worked beyond 40 in each week
must be paid.
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 Summary (continued)

• To remain competitive, employers must meet the

demands of the product and labor markets.
• Limit their costs as much as possible.
• Pay at least the going rate in their labor markets.
• According to equity theory, employees think of their
pay relative to their inputs – training, experience,
and effort.
• To decide whether their pay is equitable, they
compare their outcome (pay)/input ratio with other
people’s outcome/input ratios.

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 Summary (continued)

• The traditional approach to building a pay structure

is to use a job-based approach.
• Alternatives to the traditional approach include
broad banding and skill-based pay.
• The Uniformed Services Employment and
Reemployment Rights Act (USERRA) requires
employers to make jobs available to any of their
employees who leave to fulfill military duties for up
to five years.

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 Summary (continued)

• Executive pay has drawn public scrutiny because top

executive pay is much higher than average workers’
pay.
• The great difference is an issue in terms of equity
theory.
• Employees’ opinions about the equity of executive
pay can have a large effect on the organization’s
performance.

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