Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Part 6
Pay
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
What Constitutes Pay?
• Transaction
• Label
• Status symbol
• Determinant of standard of living
• Discriminator
Slide 26.1
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Importance of Pay
• Influence in employees’ lives
• Importance reflected in Trade Union interest in pay levels
• Legislation re minimum wage and pay bargain
Slide 26.2
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Terminology
• Compensation
• Reward
• Remuneration
• Pay
Slide 26.3
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Reward Strategy
• Aligning an organisation’s payment arrangements with its business objectives
• Developing payment systems that enhance employees contribution to business goals
• Experimentation stage with many new approaches being considered
Slide 26.4
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Employee Objectives for Contract of Payment
• Purchasing power• Fair• Rights• Relativities• Recognition• Composition
Slide 26.5
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Conventional Wisdom over Pay Composition (1 of 2)
• Younger employers more interested in high direct earnings
• Incentive or performance related payment of interest to those who see an opportunity to control own personal activities
Slide 26.6
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Conventional Wisdom over Pay Composition (2 of 2)
• Women with children are less interested in payment arrangements that depend on overtime
• Overtime used by many to produce acceptable purchasing power
Slide 26.7
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Employer Objectives For Contract For Payment
• Prestige• Competition• Control• Motivation and performance• Cost• Change management
Slide 26.8
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Factors That Can Influence The Setting of Base Pay Rates
• National minimum wage
• Equal pay law
• Nature of product markets
Slide 26.9
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Base Pay Rates Approaches
• External labour market comparisons
• Internal labour market comparisons
• Job evaluation
• Collective bargaining
Slide 26.10
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
External Market Comparisons
• Focus on external relativities
• Going rate
• Follow the market
• Sources of intelligence – IDS, IRS
Slide 26.11
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Elements of Payment (1 of 2)
Figure 26.1 The potential elements of payment
Slide 26.12
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Elements of Payment (2 of 2)
Figure 26.1 The potential elements of payment
Slide 26.13
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Importance of Equity
• Perceived inequity in payment matters can be dangerous to organisations
• An area influencing employee satisfaction is way that pay levels and increases are distributed fairly
Slide 26.14
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Principles In Pay Decisions
• Standard approach for determining pay across organisation
• As little subjective or arbitrary decision making • Maximum communication and employee
involvement • Clarity in pay determination matters
Slide 26.15
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Strategic Focus (1 of 2)
• More reward managers than salary administrators but what is change in practices
• New pay philosophy where decisions about payment levels and packages flow from overall strategy
• Pay policy increasingly underpins employer objectives
Slide 26.16
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Strategic Focus (2 of 2)
• Gaps in rhetoric and reality of strategic pay activity
• For most matter of incremental change being made
Slide 26.17
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Summary (1 of 2)
• Employees tend to be concerned with purchasing power, fairness & recognition of effort
• Employers are concerned with pay matters made by law, and realities of their markets
• Four alternative methods of setting basic pay rates
Slide 26.18
Torrington, Hall & Taylor, Human Resource Management 6e, © Pearson Education Limited 2005
Summary (2 of 2)
• There are seven elements of pay
• Procedural equity is essential to the design of successful payment systems
• There is disagreements about how UK managers embrace more strategic approaches to reward management
Slide 26.19