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Occupational

Inter-Firm

Inter-Industry

Inter-Regional

Sector

Sex Differential

NonCompeting Causes of Difference in Wages

Equalizing

Market Imperfections
NonEqualizing

Different Labor Quality

Issues in Strategic Approach to pay

Settings objectives

Internal Alignment

Internal Alignment, often called


internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization.

Internal Alignment addresses the RELATIONSHIP inside the organization . The RELATIONSHIP form a pay structure that include
Supports the Organizational Strategy Supports Work Flow Motivates Behavior

Engineer:- limited use of basic principles and concepts.

Develops solutions to problems .

Senior Engineer :- Full use of standard principles and concepts. Under general supervision.

Systems Engineer :- Wide application of principles and concepts plus working knowledge.

Lead Engineer:-regular use of ingenuity


Advisor Engineer:- contributes to the development Consultant Engineer

Pay structure refers to the array of pay rates for different work or skills within a single organization. The number of levels, the differentials in pay between the levels, and the criteria used to determine those differences describe the structure.

The The

# of levels of work criteria used to determine the levels

and differentials
The

pay differentials between the levels

Equity

theory

This applies not only for internal but also external

pay structure
Tournament

theory

When the prize differentials are larger, all

participants play better


Institutional

model

Pay, benefits, opportunities, etc.

the same, more or less

OUTCOME INPUTS
effort, ability, experience etc.

<=>

OUTCOME INPUTS

A person evaluates fairness by comparing their ratio with others.

People judge the fairness of their compensation


using multiple reference points. A person evaluates fairness by comparing with others. Comparing their jobs pay against external pay

levels.

External

Equity:- It involves employee perception of compensation fairness to relative to those outside the organization. Choice of lag or market policy is important.
fair relative to the market Pay level decision: What is our pay level policy

vis--vis our labor market competitors?

Internal

Equity:- It involves perceived fairness of pay differentials within an organization.


fair relative to other jobs within the firm
Pay structure decision: By default or design, firms

have a pay structure


basis for structure?

Individual

Equity

fair relative to other people performing the same

or similar jobs within the firm


Individual pay determination: What should drive individual pay differences? Do pay differences actually reflect differences in individual contributions?

Closely Tailored
Jobs are well-defined Strict definition of tasks

vs.

Loosely Coupled
loosely defined Obscure definition

Egalitarian
Small number of pay levels Smaller pay differentials

vs.

Hierarchical
Large number large differentials

Job based structure

vs.

Person based

EXTERNAL
Economic Pressures

FACTORS
Stakeholders

Govt. Policies

ORGANIZATION
Strategy

FACTORS
HR Policy

Technology

INTERNAL STRUCTURE
Levels Differentials Criteria