Chapter 7External Competitiveness-Focuses on comparisons outside the organization – comparisons with other employers that hire the same kind of employees-The pay relationships among organizations – the organization’s pay relative to its competitors-Setting a pay levelthat is above, below, or equal to that of competitorsoPay level refers to the average of the array of rates paid by an employer= Σ (base + bonuses + benefits + options) / # employeesoDetermining the mix of pay forms relative to those of competitorsPay forms are the various types of payments, or pay mix, that make up total compensation•Direct and indirectObjective: Control Costs & Increase Revenues-Other things being equal, the higher the pay level, the higher the labor costs:Labor costs = average pay level x number of employees-Higher the pay level, the higher the labor costs-Higher the pay level relative to what competitors pay, the greater the relative costs to provide similar products or servicesObjective: Attract and Retain-A single company may set a different pay level for different job families-Different employers set different pay levelsoOne company may pay its employees more because it believes they are more productive than those at other companiesoAnother company may pay less because it tries to differentiate itself on non-financial, more relational returns-Different companies may offer the same total compensation but different mixesAttract and Retain the Right Employees-How a company compares to the market depends on what competitors it compares to and what pay forms are included-Organizations vary in how closely they match the “going rate”-There is no single “going mix” of pay formsDemand Side Theories (Exhibit 7.6)-Why would an employer pay more than the market wage?oCompensating differentialsAn employer must offer higher wages to compensate for negative features of jobsoEfficiency wageHigh wages may increase efficiency and actually lower labor costs•More qualified applicants, lower turnover, greater effort, less shrinking, reduced supervisionoSignalingAn employer designs pay levels and mixas part of a strategy to signal to potential and current employees the kinds of behaviors it expects
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- Fall '12
- Management, pay level, pay forms