Chapter 11: Establishing Strategic Pay Plans 11-8
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eliminate a sense of permanence in a set of job responsibilities. This is
particularly difficult for new employees.
D. Comparable Worth – refers to the requirement to pay men and women
equal wages for jobs that are dissimilar but of comparable value (for
instance measured in points) to the employer. The Gunther Supreme Court
Case involved Washington County, Oregon, prison matrons who claimed
sex discrimination. Washington County finally agreed to pay 35,000
employees in female-dominated jobs almost $500 million in pay raises
over 7 years to settle the suit.
E. Diversity Counts: The Pay Gap – although the gap is narrowing a bit,
women still earn only about 77% as much as men. Education may reduce
the wage gap.
F. Board Oversight of Executive Pay – boards are clamping down on
executive pay. Since 2005, the Financial Accounting Standards Board
(FASB) has required that companies recognize, as an expense, the fair
value of the stock options they grant. The Sarbanes-Oxley Act makes
executives personally liable for lapses in corporate financial oversight.
VI. Employee Engagement Guide For Managers
A. Total Rewards Programs – total rewards encompass the traditional financial
compensation components. However, they also include personal and professional
growth opportunities and a motivating work environment.
B. Trends Shaping HR: Digital and Social Media
C. Total Rewards and Employee Engagement
Chapter Review
Chapter Section Summaries:
11-1: In establishing strategic pay plans, managers first need to understand some basic factors
in determining pay rates.
11-2: Employers use two basic approaches to setting pay rates: market-based approaches and
job evaluation methods.
11-3: We said the process of creating a market-competitive pay plan while ensuring external,
internal, and procedural equity consist of 16 steps.
11-4: Pricing managerial and professional jobs involves some special issues.
11-5: We addressed five important special topics in compensation.
11-6: Research shows that if employee engagement is the aim, it makes sense to emphasize total
rewards, not just financial rewards.
Discussion Questions:
11-1: What is the difference between exempt and nonexempt jobs?
Chapter 11: Establishing Strategic Pay Plans 11-9
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This item can be assigned as a Discussion Question in MyManagementLab. Student
11-2: Should the job evaluation depend on an appraisal of the jobholder’s performance?
Why? Why not?
No. Job evaluation involves comparing jobs to one another based on their content.
Individual performance is covered under performance evaluation and does not affect the
11-3: What is the relationship between compensable factors and job specifications?
Compensable factors include skill, effort, responsibility, working conditions, problem
solving, know-how, accountability, and the like. Many of these factors are obtainable
11-4: Define and give an example of how to conduct a job evaluation.
This item can be assigned as a Discussion Question in MyManagementLab. Student
11-5: The average pay for most university presidents is around $300,000 per year, but
many earn much more. For example, the president of NYU received about $1
million in 1 year. Discuss why you would (or would not) pay university presidents as
much or more than many corporate CEOs.
Students’ answers will vary but should use the information found in the text to explain
11-6: Do small companies need to develop a pay plan? Why or why not?
Yes, small companies need to develop a pay plan. Students should use information
Individual and Group Activities:
11-7: Working individually or in groups, conduct salary surveys for the following positions:
entry-level accountant and entry-level chemical engineer. What sources did you use,
and what conclusions did you reach? If you were the HR manager for a local
engineering firm, what would you recommend that you pay for each job?
Students should be expected to use several of the resources indicated in the chapter for
gathering this information. Results should be checked for bias or contamination such as
Chapter 11: Establishing Strategic Pay Plans 11-10
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this information. Student recommendations should be based on sound logic and
11-8: Working individually or in groups, develop compensation policies for the teller
position at a local bank. Assume that there are four tellers: two were hired in May
and the other two were hired in December. The compensation policies should
address the following: appraisals, raises, holidays, vacation pay, overtime pay,
method of pay, garnishments, and time cards.
Students’ answers will vary but look for responses to incorporate material from the
11-9: Working individually or in groups, access relevant Web sites to determine what
equitable pay ranges are for these jobs: chemical engineer, marketing manager, and
HR manager, all with a bachelor’s degree and 5 years’ experience. Do so for the
following cities: New York, New York; San Francisco, California; Houston, Texas;
Denver, Colorado; Miami, Florida; Atlanta, Georgia; Chicago, Illinois;
Birmingham, Alabama; Detroit, Michigan; and Washington, D.C. For each position
in each city, what are the pay ranges and the average pay? Does geographical
location impact the salaries of the different positions? If so, how?
The students should use resources and Internet sites discussed in the chapter to determine
11-10: Appendices A and B at the end of this book list the knowledge someone studying for
the HRCI (Appendix A) or SHRM (Appendix B) certification exam needs to have in
each area of human resource management (such as in Strategic Management and
Workforce Planning). In groups of several students, do four things: (1) review
Appendix A and/or B; (2) identify the material in this chapter that relates to the
Appendix A and/or B required knowledge lists; (3) write four multiple-choice exam
questions on this material that you believe would be suitable for inclusion in the
HRCI exam; and (4) if time permits, have someone from your team post your
team’s questions in front of the class, so that students in all teams can answer the
exam questions created by the other teams.
Material from this chapter that relates to the test would include: determining pay rates,
corporate policies and competitive strategy, equity and its impact on pay rates, the salary
survey, job evaluation, pay grades, wage curves, fine-tuning pay rates, compensating
11-11: Working individually or in groups, use the point system described in steps 1 to 16 in
this chapter. Do so for a job description that you find online—the list like that at
http://hiring.monster.com/hr/hr-best-practices/recruiting-hiringadvice/ job-
descriptions/sample-job-descriptions.aspx is useful. To simplify things, assume there
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is only one factor you have to use, and that it is Job Complexity, so that you can use
Figure 11-5.
Student answers will vary.
Experiential Exercises: Ranking the College’s Administrators
Purpose: The purpose of this exercise is to give you experience in performing a job evaluation
using the ranking method.
Required Understanding: You should be thoroughly familiar with the ranking method of job
evaluation and obtain job descriptions for your college’s dean, department chairperson, director
of admissions, library director, registrar, and your professor.
How to Set up the Exercise/Instructions: Divide the class into groups of four or five students.
The groups will perform a job evaluation of the positions of dean, department chairperson, and
professor using the ranking method.
Perform a job evaluation by ranking the jobs. You may use one or more compensable factors.
11-12: If time permits, a spokesperson from each group can put his or her group’s rankings
on the board. Did the groups end up with about the same results? How did they
differ? Why do you think they differed?
Application Case: Salary Inequities at AstraZeneca
11-13: Although the case with OFCCP is closed, we wonder if there are any less
discriminatory explanations possible for why our women sales reps on average
earned less than men. If so, what are they?
Students’ answers will vary. Some responses may include: hours worked, sales closed,
11-14: Our own company now uses a point method to evaluate jobs for pay purposes, and
each resulting job class also has a rate range associated with it. Sales associates are
now paid a salary that is not based on incentive pay. List three specific things we
can do to ensure that a similar problem (inequitable pay based on gender) does not
arise again, assuming they continue using the point plan.
• Make sure that job analysis is completed and tasks that are not needed to do the
job, are not listed as part of the job requirements.
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• Provide training on diversity in the work place to recruiters, and selection or
11-15: What sort of compensation plan would you recommend for us, and why?
Students’ answers will vary depending on which type of compensation plan they choose.
Continuing Case: Carter Cleaning Company – The New Pay Plan
11-16: Is the company at the point where it should be setting up a formal salary structure
based on a complete job evaluation? Why?
Yes, the company should set up a formal salary structure complete with job evaluations.
11-17: Is Jack Carter’s policy of paying 10% more than the prevailing rates a sound one,
and how could that be determined?
The students should use their judgment based on information presented in the chapter in
11-18: Similarly, is Carter’s male–female differential wise? If not, why not?
The salesperson’s male-female differential is not wise. The students should reference the
11-19: Specifically, what would you suggest Jennifer do now with respect to her company’s
pay plan?
There are many things that students could reasonably suggest – among them: eliminate
the gender pay differential, establish performance or competency-based pay, and
Hotel Paris: Improving Performance at the Hotel Paris – The New Compensation
Plan
11-20: Lisa knew little about setting up a new compensation plan. What would you tell her
if she asked, “How do I set up a new compensation plan for the Hotel Paris?”
Answers will vary widely. Look for examples with good tie-ins between policies,
11-21: Would you suggest that Hotel Paris implement a competency based pay plan for its
non-managerial staff? Why or why not? Outline what they need to do.
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The current plan is not linked to Hotel Paris’ strategic goals, and the link between pay
and performance is weak and sometimes counterproductive. Competency-based pay
11-22: Devise a ranking job evaluation system for the Hotel Paris’s non-managerial
employees (housekeepers, valets, front-desk clerks, phone operators, wait staff,
groundskeepers, and security guards) and use it to show the worth of these jobs
relative to one another.
Students’ answers will vary. It is important to discuss how frequently each job interacts
with the customer, what competencies are needed in each position, how students believe
My Management Lab
Students can find the following assisted-graded writing questions at mymanagementlab.com.
Answers to these questions are graded against rubrics in the MyLab.
11-23: You want to hire a new salesperson for the small dress shop you own in Columbus,
Ohio, but first need to decide what sort of pay package to offer whomever you
eventually hire. How would you conduct a salary survey to determine what the pay
should be?
11-24: Compare and contrast the following methods of job evaluation: ranking, classification,
factor comparison, and point method.
Key Terms:
Employee Compensation – All forms of pay or rewards going to employees and arising from
their employment.
Direct Financial Payments – Pay in the form of wages, salaries, incentives, commissions, and
bonuses.
Indirect Financial Payments – Pay in the form of financial benefits, such as insurance.
Davis-Bacon Act (1931) – A law passed in 1931 that sets wage rates for laborers employed by
contractors working for the federal government.
Walsh-Healey Public Contract Act (1936) – A law that requires minimum wage and working
conditions for employees working on any government contract amounting to more than $10,000.
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Title VII of the 1964 Civil Rights Act – This act makes it unlawful for employers to
discriminate against any individual with respect to hiring, compensation, terms, conditions, or
privileges of employment because of race, color, religion, sex, or national origin.
Fair Labor Standards Act (1938) – This act provides for minimum wages, maximum hours,
overtime pay, and child labor protection. The law has been amended many times and covers
most employees.
Equal Pay Act – A 1963 amendment to the Fair Labor Standards Act designed to require equal
pay for women doing the same work as men.
Employee Retirement Income Security Act (ERISA) – The 1974 law that provides
government protection of pensions for all employees with company pension plans. It also
regulates vesting rights (employees who leave before retirement may claim compensation from
the pension plan).
Job Evaluation – A systematic comparison done in order to determine the worth of one job
relative to another.
Market-Competitive Pay Plan – Pay plan where pay rates are equitable both internally (based
on each job’s relative value) and externally (in other words when compared with what other
employers are paying).
Compensable Factor – A fundamental, compensable element of a job, such as skills, effort,
responsibility, and working conditions.
Benchmark Job – A job that is used to anchor the employer’s pay scale and around which other
jobs are arranged in order of relative worth.
Ranking Method – The simplest method of job evaluation that involves ranking each job
relative to all other jobs, usually based on overall difficulty.
Job Classification (or job grading) – A method for categorizing jobs into groups.
Classes – Grouping jobs based on a set of rules for each group or class, such as amount of
independent judgment, skill, physical effort, and so forth, required. Classes usually contain
similar jobs.
Grades – A job classification system like the class system, although grades often contain
dissimilar jobs, such as secretaries, mechanics, and firefighters. Grade descriptions are written
based on compensable factors listed in classification systems.
Grade Definition – Written descriptions of the level of, say, responsibility and knowledge
required by jobs in each grade. Similar jobs can then be combined into grades or classes.
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Point Method – The job evaluation method in which a number of compensable factors are
identified and then the degree to which each of these factors is present on the job is determined.
Market-Competitive Pay System – A pay system in which the employer’s actual pay rates
are competitive with those in the relevant labor market.
Wage Curve – Shows the relationship between the value of the job and the average wage paid
for this job.
Salary Survey – A survey aimed at determining prevailing wage rates. A good salary survey
provides specific wage rates for specific jobs. Formal written questionnaire surveys are the most
comprehensive, but telephone surveys and newspaper ads are also sources of information.
Pay (or wage) Grade – A pay grade is comprised of jobs of approximately equal difficulty.
Pay (or rate) Range – A series of steps or levels within a pay grade, usually based upon years of
service.
Compa Ratio – Equals an employee’s pay rate divided by the pay range midpoint for his or her
pay grade.
Competency-Based Pay – Where the company pays for the employee’s range, depth, and types
of skills and knowledge, rather than for the job title he or she holds.
Broadbanding – Consolidating salary grades and ranges into just a few levels or “bands,” each
of which contains a relatively wide range of jobs and salary levels.
Comparable Worth – The concept by which women who are usually paid less than men, can
claim that men in comparable rather than strictly equal jobs, are paid more.