Pay level the average of the array of rates paid by

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Pay level = the average of the array of rates paid by an employer: (base + bonuses + benefits + value of stocks) / number of employees. A pay policy line is a representation of the organisation’s pay-level policy relative to what competitors pay for similar jobs. The reason why an organisation has a pay policy is based on the basic principle that the competitiveness of pay will affect the organisation’s ability to achieve its compensation objectives, and this in turn will affect its performance. There are four conventional pay policies from which an organisation can choose, namely: match, lead, lag and flexible. These policies are discussed below:
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55 MNH306K/101 (a) Match policy (pay with competition) This approach is the most common policy used by employers to match rates paid by competitors. This policy involves paying the same as competitors and ensuring that the organisation’s wages costs are approximately equal to those of its competitors. However, this policy might not be able to provide the organisation with a competitive advantage. Managers think that if this policy is not used, it may lead to unhappiness among employees and limit the organisation’s ability to recruit. (b) Lead policy This policy entails paying more than competitors. This may maximise the organisation’s ability to attract and retain quality employees and minimise employee dissatisfaction with pay. It may also offset less attractive features of the work. This policy may force employers to increase the wages of current employees to prevent internal misalignment and unhappiness and may also hide unattractive job features that later can contribute to a high turnover. (c) Lag policy This policy pays below-market rates and may hamper an organisation’s ability to attract potential employees. If the policy is coupled with the promise of higher returns, the combination may increase employee commitment and foster team work which may increase productivity. However, unmet expectations may have negative effects in this case. The organisation may lag competition on pay, but lead on other issues, such as interesting assignments, the possibility of travel abroad or work/life balance that may attract employees to whom these returns are more important than pay. (d) Flexible policy Many employees may vary the policy for different occupational families or for different forms of pay. Different business units that operate in vastly different competitive conditions may also adopt different policies for the different business units.
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56 COMMENTS ON ASSIGNMENT 04 These questions refer to study units 2, 7 and 8. The marks awarded are indicated in brackets. 4.1 The first step in the development of a total compensation strategy is to assess the total compensation implications of the strategy. Briefly describe the five factors in the organisation’s business strategy that contribute to its success. Use examples from the case study to illustrate the discussion. (20) Use study unit 2 as point of departure for answering this question.
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