252 Human Resources Management for Public and Nonprofi t Organizations
that most employees are concerned with, yet most of us do not understand
the underlying premises that drive compensation systems. What factors, for
example, explain the differences in compensation between an administra-
tive specialist working for the federal government in a general salary clas-
sifi cation GS - 6, step 3, who makes an annual salary of $ 31,228, whereas a
fellow GS - 6, step 8, makes $ 36,108. They perform the same tasks, but the
step 3 administrative specialist is more profi cient. Or why are the starting
salaries for fi refi ghters in adjacent municipalities different? Firefi ghters in
municipality A start at $ 32,000 per year, while the starting salary for fi re-
fi ghters in municipality B is $ 36,071 per year. Or what explains the differ-
ence between the salaries of executive directors of Boys & Girls Clubs of
America at different clubs? The advertised salary range for the executive
director of the Boys & Girls Club of Central Maryland, located in Conejo,
and that of Las Virgene, California, is $ 90,000 to $ 120,000, while the
advertised salary range for the executive director of the Boys & Girls Club
in Eugene, Oregon, is $ 42,000 to $ 52,000.
From an SHRM perspective, employers use compensation to attract,
retain, and motivate employees to achieve organizational goals. Employees
expect fair remuneration for the services they perform. However, what is
often lacking is the understanding that compensation is affected by many
factors: employees ’ expectations and perceptions of fairness, competitive
labor market wages, the extent of other benefi ts provided to employees,
the organization ’ s ability to pay, and federal, state, and local laws.
This chapter introduces the concepts of equity, competitive labor mar-
kets, and comparable worth, as well as job evaluation methods, the design
of pay structures, and federal laws that infl uence compensation. Indirect
fi nancial compensation, more commonly referred to as employee benefi ts,
is discussed in Chapter Ten.Equity
Individuals have expectations about what they will be paid. They expect
fair compensation. The standards that they use to determine whether
the compensation they receive is fair are based on perceptions of equity.
According to equity theory, employees compare their job inputs and out-
comes to the inputs and outputs of other employees performing similar
tasks. If they perceive their ratio of inputs to outputs to be equal to those
with whom they compare themselves, a state of equity is said to exist. If
the ratios are unequal, inequity exists, and employees will believe that they