MGMT 494 Ch.7 Study Guide - Chapter 7 External Competitiveness Focuses on comparisons outside the organization comparisons with other employers that

MGMT 494 Ch.7 Study Guide - Chapter 7 External...

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Chapter 7 External 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 level that is above, below, or equal to that of competitors o Pay level refers to the average of the array of rates paid by an employer = Σ (base + bonuses + benefits + options) / # employees o Determining the mix of pay forms relative to those of competitors Pay forms are the various types of payments, or pay mix, that make up total compensation Direct and indirect Objective: 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 services Objective: Attract and Retain - A single company may set a different pay level for different job families - Different employers set different pay levels o One company may pay its employees more because it believes they are more productive than those at other companies o Another 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 mixes Attract 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 forms Demand Side Theories (Exhibit 7.6) - Why would an employer pay more than the market wage? o Compensating differentials An employer must offer higher wages to compensate for negative features of jobs o Efficiency wage High wages may increase efficiency and actually lower labor costs More qualified applicants, lower turnover, greater effort, less shrinking, reduced supervision o Signaling An employer designs pay levels and mix as part of a strategy to signal to potential and current employees the kinds of behaviors it expects
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  • Fall '12
  • Davison
  • Management, pay level, pay forms

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