From the course: Human Resources: Compensation and Benefits

Internal alignment on pay

From the course: Human Resources: Compensation and Benefits

Start my 1-month free trial Buy for my team

Internal alignment on pay

“

- Why do high tech firms pay more for software engineers than for accountants? And why does an entry level engineer make less than a lead engineer? It's because many organizations design their pay structures around jobs and job levels. Internal alignment refers to the "pay relationships among different jobs within a single organization." How much pay one job receives relative to another. Four external factors help shape those pay relationships. The first is economic pressures, the supply and demand for labor. For example, right now, data scientists are in high demand, but the supply of qualified data scientists is low. That imbalance defines a tight labor market, and it puts upward pressure on wages. Now consider clerical and administrative workers. There's an oversupply of them, but limited demand for their skills. That imbalance defines a loose labor market, and it puts downward pressure on wages. Government policies, laws, and regulations are also external factors that shape the pay structure within a company. And as you might imagine, those will vary state to state. So check with your legal advisor to find out how they might affect your business. Stakeholders, primarily unions and shareholders, also affect pay structures. Unions seek smaller pay differences among jobs and seniority based promotions as a way to generate solidarity among members. Large institutional shareholders, like pension funds, sometimes vote against executive compensation that they view as unjustified. And finally, cultures and customs. In some countries, accepted standards about the appropriate ratio of CEO pay to that of average workers has served to limit CEO pay. While in the United States, CEO pay may be 300 times or even more than that of the average worker. These four external factors help shape pay structures and pay relationships inside the organization. In order to be competitive, businesses need to be aware of these external factors and consider their effects when establishing the pay relationships in their own organizations.

Contents