CMS 2 | Assignment 6

Which pay policy achieves a competitive advantage?

- least risk approach is probably best, which is to match competition. - no good research that shows the consequences of one or the other.

What influences external competitveness?

1. Competition in the labor market for people with various skills 2. Competition in the product and service markets, which affects the financial condition of the org 3. Characterisitics unique to each org and its EEs, such as its business strategy, technology, and the productivity and experience of its workforce

Two Basic types of Markets

1. Quoted Price 2. Bourse: (negotiating over the terms and conditions until an agreement is reached)

How do efficient wages act as a modification to the demand side

Efficency wage theory say that sometimes high wages may increase efficeiny and actually lower labor costs if they: 1. Attract higher quality applicants 2. lower turnover 3. increase worker effort 4. reduce "shirking" (avoid or neglect responsiblity) 5. Reduce the need to supervise employees

Signaling

is a closely related process ( to sorting) that underlies the sorting effect.

Marginal revneue of labor

is the additional revenue generated when the firm employs one additional person, with other production factors held constant

Sorting

is the effect that pay strategy has over the composition of the workforce

Pay forms

refer to the mix of the various types of payments that make up total compensation

Pay level

refers to the average of the array of rates paid by an employer.

External competitivness

refers to the pay relationships among organization or the orgs pay relative to it's competitors.

how do managers choose a competitive pay policy

- The basic premise is that the competitiveness of pay will affect the org's ability to achieve its compensation objectives, which in turn will affect the organiztion's performance - the problem with much pay-level research is that it focuses on base pay and ignores bonuses, incentives, options, employment security, benefits or other forms of pay. - many managers seem to believe they get more bang for the buck allocating dollars away from base pay and into variable forms that more effectively shape employee behavior

Market Drive

- They pay competitvely with the market or even are the market leaders. - understanding this requires an analysis of the demand and supply of labor

How does human captial modify the supply side

- based on the premise that higher wages flow to those who improve their potential productivity by investing in themselves through additional education, training,a nd experience. - the theory assumes that people are in fact paid at the value of their marginal product - highe rpay is required to induce people to train for more difficult jobs - Consequently, jobs that require long and expensive training receive higher pay levels than jobs that require less investment

How does a reservation wage act as a modification to the supply side?

- it is recognized that job seekers will not accept jobs whose pay is below a certain wage, no matter how attractive other aspects of the job may be. - what this means is that job seekers have a reservation wage level below which they will not accept a job offer - They pay level will affect one's ability to recruit

Describe how pay level and mix focus on the ability to control costs

- pay level decisions have a significant impact on expenses - other things being equal, the higher the pay level, the higher the labor cost. - Labor costs are equal to pay level times the number of employees - different organizations pay different for jobs

Explain compensating differentials as a modification to the demand side

- people consider the whole of the advantages and disadvantages of different employments - make a decision based on the greated net advantage - Advantage being greater job security or better working conditions. - Work with negative characterisitics requires higher pay to attract workers.

define product demand and degree of competition

- product demand is a product market that sets the upper limit within which an employer's pay level is set - the degree of competition comes into play when employers in a highly competitve market will be less able to raise prices without loss of revenues

How does signaling act as a modification to the demand side?

-Signaling theory says that employers deliberately design pay levels and mix as part of a strategy that signals to both prospectie and current employees what kinds of behaviors are sought - a policy of paying below the market fo rbase pay yet offering generous bonuses or training opportunities sends a different signal, and presumeably attracts different people, than a policy of matching market wage with no performance-based pay. - An employer who combines lower base pay with high bonuses may be signaling that it wants employees who are risk takers - Signaling works on the supply side of the model too, as suppliers of labor signal to potential employers - people who are better trained, ahve higher grades in relevant courses and/or have related work expereince signal to prospective ERs that they are likely to be better performers

Briefly explain other forms of competitive pay policies than the three traidtional ones discussed in teh previous question

1. Employer of choice policy -- goes beyond pay level and forms t ofocus on all returns from employment including a firm's overall reputation as a place to work. strong emphasis on perofrmace, extensive training opportunities, challenging work assignments and the like. 2. Shared Choice approach -- begins with traditional componenets of lead, meet or lag but it then adds a second part -- which is to offer EEs choices in pay mix. More say in the forms of pay they receive. Not uncommon in U. S. examples being -- health insurance, retirement investments, and so on.

What are the four basic assumptions that theories of labor markets usually begin with?

1. Employers always seek to maximize the profits 2. People are homogeneous and therefore interchangeable 3. The pay rates reflect all costs associated with employement 4. The markets faced by employers are competitive, so there is no advantage for a single employer to pay above or below the market rate

Briefly discuss three different competitive pay policies

1. Match rates paid by competitiors (most popular) -- most say that not matching rates would cause dissatisitcaction among employees this is known as a PAY WITH COMPEITION 2. LEAD PAY -- maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction. Negatives -- hide high turnover due to negatives job factors, cause dissention among existing EEs which weren't paid that way 3. LAG POLICY -- pays below market. May hinder potential to get quality employees. however if pay increases are based on future success, this may cause productivity and teamwork

What factors should be considered in defining relevant markets

1. The skills, knowledge and qualification required in an occupation are important because they tend to limit mobility among other occupations 2. Licensing and certification requirements 3. Geography -- many top level employees are found globally, nationally or regionally 4. industry in which the employer competes affects the relevant labor market -- Labor market comparisons become important if the org is having difficulty attracting and retaining employees

explain how companies set their pay level to attract and retain employees

1. different ERs set different pay levels. That is, they deliberately choose a payl level above or below what others are paying for the same work, that is why there is no single going rate in the labor market for a specific job 2. Not only do the rates paid for similar jobs vary among employers, a single company may set a different pay level for different job families. Many compaines use very different pay level for different job families.

What organizational factors influence pay level and mix decision

1. industry in which an org competes influes the technology used. Labor-intensive industries such as education and health care tend to pay lower than technology intensive industries such as petroleum or pharamaceuticals. 2. Employer size -- large employers tend to pay more than smaller ones 3. what orgs believe are employee' preferences. What pay forms do employees really value

What : 1. must a manager do when he or she uses the marginal revenue product model to determine how many people to hire 2. What are the disadvantages inhereent in this model?

1. must do two things first, determine the pay level set by the market forces and Second, determine the marginal revenue generated by each new hire 2. This model provides a valuable analytical framework, but it oversimiplifies the real world. in most orgs it's impossible to quanity the goods or services produced by its individual employees since most production is hrough oint efforts of employees with a variety of skills

Identify two factors won which extrenal competitiveness is expressed

1. setting a pay level that is above, below or equal to the competitors 2. determining the mix of pay forms relative to those of competitors.

Marginal Product of labor

is the additional output associated with the employment of one additional person, with othe rproduction factors held constant