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
- Management, pay level, pay forms