Tuesday, August 9, 2016

What determines salaries?

TOPICS: Labor Economics
SUMMARY: An improving labor market and fair-pay laws are prompting companies to rethink the way they set salaries and, in some cases, implement a formal compensation structure or philosophy to guide their decisions. Related article 1: The ad hoc process of making salary decisions based on factors like a candidate's competing offer or the budget handed down by a distant finance team is looking less tenable to a lot of human-resources executives. Related article 2: Questions about pay equity may be moving into the boardroom. Among nonemployee corporate directors, women and minorities make less than their nondiverse counterparts, according to latest research.
CLASSROOM APPLICATION: Instructors can use the articles to introduce important practical issues in salary determination, paying particular attention to pay equity. One point is that pay is determined as a function of job and market data and managerial discretion. Pay inequities can creep into salary determination mostly through the use of managerial discretion.
QUESTIONS: 
1. (Advanced) How should prior salaries be used in determining salaries of new employees?

2. (Introductory) Why did female hires at Google in 2015 receive a 30% bigger raise over their prior salary than male new hires?

3. (Advanced) Should employers use data from the labor market when setting salaries? Should employers respond to offers made by other firms to attract star employees?

4. (Advanced) Is setting salaries an art or a science? What does it mean for an economic process to be an art?
Reviewed By: James Dearden, Lehigh University
RELATED ARTICLES: 
What is the Best Way to Pay Workers?
by Lauren Weber
Aug 03, 2016
Page: B6

Pay Inequality Poses a Concern in Boardrooms, Too
by Rachel Feintzeig
Aug 03, 2016
Page: B6
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