Compensation

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I NSTRUCTOR’S MANUAL

Designing A Pay Structure

CASe STUDy AND INTegRATeD APPLICATION exeRCISeS

Designing A Pay Structure
By Lisa A. Burke, Ph.D., SPHR

Instructor’s Manual

TOTAL REWARDS
©2008 SHRM Lisa Burke, Ph.D., SPHR

1

I NSTRUCTOR’S MANUAL

Designing A Pay Structure

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©2008 SHRM Lisa Burke, Ph.D., SPHR

CASe STUDy AND INTegRATeD APPLICATION exeRCISeS

Designing A Pay Structure
Designing a Pay Structure
About this CAse

Learning Objectives

In this case, upper-level undergraduate or master’s level HR students

In this case, students will learn to
design a pay structure. To do so,
they will:

will learn how to design a pay structure using a case scenario and integrated application exercises.
This case is rated as slightly challenging and requires familiarity with and use of the Internet and Microsoft Excel. Instructors can make the case and associated exercises less challenging by eliminating certain tasks assigned in the case, or may increase the difficulty by adding

Write a job description using the
O*NET website.
Use the point method to conduct
a job evaluation.
Analyze pay survey data for
benchmark jobs.
Create a market pay line in Excel.

other relevant tasks and questions. Teaching notes accompany the

Create a pay policy line based
on a stated pay-level strategy.

case. Instructors who have previously taught compensation courses,

Create pay grades.

are familiar with the Internet and Excel, have work experience with

Establish pay ranges.

pay systems, or who conduct research in compensation area may find the case easier to facilitate.

This case complements the first 40 percent or so of chapters in most compensation textbooks. The amount of time the case takes for students to complete will depend on students’ skills and education level. Time can be allotted during class in a computer lab so the instructor can facilitate students’ work on the associated exercises, but some outside-of-class work is also necessary.

Recommended Reading
Milkovich, G., and Newman, J.
(2008). Compensation. McGrawHill Irwin. Chapters 1-8.

Table of Contents
CAse with teAChing notes.................................................................................................... 2 Possible solution for eACh CAse exerCise ....................................................29 student version of the CAse..........................................................................................45

©2008 SHRM Lisa Burke, Ph.D., SPHR

1

I NSTRUCTOR’S MANUAL

Designing A Pay Structure
Case with Teaching Notes
Introduction to Compensation and Designing a Pay Structure
Compensation is a critical area of human resource (HR) management, and one that can greatly affect employee behavior. To be effective, compensation must be perceived by employees as fair, competitive in the market, accurately based, motivating and easy to understand.

HR professionals might create the pay structure for their organization, or they might work with an external compensation consultant. There are several steps to designing a pay structure: job analysis; job evaluation; pay survey analysis; pay policy development; and pay structure formation. Each step is briefly explained below. For a more extensive discussion, please review Milkovich & Newman (2008).

Step 1: Job Analysis
Job analysis is the process of studying jobs in an organization. The outcome of this process is a job description that includes the job title, a summary of the job tasks, a list of the essential tasks and responsibilities, and a description of the work context. Also included are the knowledge, skills and abilities needed to perform the job. Step 2: Job Evaluation

Job evaluation is the process of judging the relative worth of jobs in an organization. The outcome of job evaluation is the development of an internal structure or hierarchical ranking of jobs. Job-based evaluation is used...
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