10-1      Describe expectancy and equity theories as they apply to compensation.

Expectancy theory—Employees expect to put forth some form of effort at work. This effort is expected to result in some level of performance. The performance level is then expected to result in some type of reward, and if it does, the employee expects to put out more effort. The reward has to be significant to the individ­ual, and as long as it is, the employee will continue to put out effort. So employees will either be motivated by their outcomes, including compensation, or be demotivated by them.

Equity theory—people compare their inputs (the things they do in the organization) and outcomes (the things that they receive from the organization) to those of relevant others. If employees believe that there is inequity, they will change their work behavior to create equity. Employees must perceive that they are being treated fairly, relative to others. Compensation is obviously a large part of the perceived outcomes.

10-2      Identify the seven basic issues that make up the organizational philosophy on compensation.

1. Ability to pay. This is an honest assessment of how much we can afford, or are willing to afford, in order to compensate our employees.

2. Types of compensation. This refers to the mix of the four basic components of compensation—base pay, wage add-ons, incentives, and bene­fits—that we employ. We must divide available funds among the components.

3. Pay for performance or longevity. Will we pay people based on organizational loyalty/tenure, or will we pay based on performance in their jobs?

4. Skill or competency-based pay.

5. At, above, or below the market. What will our general pay structure look like, and why?

6. Wage compression. This lowers the pay dif­ferential between long-term and newly hired employees.

7. Pay secrecy. Will we utilize pay secrecy clauses in employment contracts? Pay secrecy may allow us to hide actual wage inequities from employees, but it has the potential to create dis­satisfaction and demotivation.

10-3      Discuss the three major provisions of the FLSA.

1. Minimum wage rates identify the lowest hourly rate of pay generally allowed under the FLSA. There are many exemptions, but if a person is nonexempt, minimum wage will apply.

2. Overtime rates are also required for persons who are nonexempt. However, there are dif­ferent exemptions for overtime than there are for minimum wage, so HR managers must check the law to determine who will have to be paid overtime.

3. Child labor requirements within the FLSA identify the jobs and allowable working hours for individuals between 14 and 18 years old. Sixteen- and 17-year-olds can only be employed in nonhazardous jobs, but their work hours are unrestricted. However, 14- and 15-year-olds can only work outside school hours, and the jobs that they are allowed to do are limited to retail and other service positions. They may not work overtime.

10-4      Name the three types of job evaluation discussed in the text and discuss whether they are more objective or subjective in form.

1. The job ranking method is simply the process of putting jobs in order from lowest to highest or vice versa, in terms of value to the company. However, it has limited usefulness because it is subjective.

2. Point-factor methods, on the other hand, attempt to be completely objective in form. They break a job down into component skills or abilities, known as factors, and then apply points to each factor based on its difficulty.

3. The factor comparison method combines the ranking and point-factor methods to provide a more thorough form of job evaluation. It iden­tifies benchmark jobs and then analyzes and rank-orders them. We then compare all other jobs in the organization to the benchmark jobs to determine where each one fits in the rankings.

10-5      Explain the concept of a pay structure.

A pay structure is created by laying out our pay lev­els, one next to the other. The entire group of pay levels creates the pay structure. Benchmark jobs can be plotted on the pay structure to get a market pay line—a line that shows the average pay at different levels in a particular industry. Once pay levels are set, we can actually plot employee rates of pay on the pay structure to see if any are plotted outside our pay level ranges, either high or low. Individuals who fall outside our pay range to the high side are paid red-circle rates, and those who fall outside low are paid green-circle rates. Each of these rates should be reviewed and corrected if necessary.

10-6      Define the key terms found in the chapter margins and listed following the Chapter Summary.

Complete the Key Terms Review to test your understanding of this chapter’s key terms.