Chapter 7 - Defining Competitiveness

LABOR DEMAND: Compensating wage differentials (implication)

*Job evaluation and compensable factors must capture* these negative characteristics.

Pay policy options attempt to ensure an organization's:

-*Wage costs* are approximately equal to those of its product competitors -*Ability to attract* potential employees will be approximately *equal* to its labor market competitors

Product market factors

-Degree of Competition -Level of product demand

Flexible policy

-Employers have *more than one pay policy* -Policy may vary for different occupational families ~Above market for critical skill groups ~Below or at market for others *-Policy may vary for different pay elements* ~Above market in total compensation ~Below market in base pay ~Above market in incentives and rewards ~At or above market in benefits

Degree of competition

-In highly competitive markets, employers are less able to raise prices without loss of revenues -*Single sellers* are able to set whatever price they choose

Organizational factors

-Industry -Strategy -Size -Individual manager

Organizational factors

-Industry and technology -Employer size -People's preferences -Strategy

Lead policy

-Maximizes ability to attract and retain quality employees and minimizes employee dissatisfaction with pay -May offset less attractive features of work -If used only to hire new employees, may lead to dissatisfaction of current employees

Lag policy

-May hinder a firm's ability to attract potential employees -If pay level is lagged in return for promise of higher future returns ~May increase employee commitment ~Foster teamwork ~May possibly increase productivity

Match policy

-Most common policy -Tries to ensure that an organization's *wage costs are approximately equal to those of its product competitors* and that its ability to attract applicants will be approximately equal to its labor market competitors

Labor market factors

-Nature of demand -Nature of supply

Pay level and pay mix decisions focus on two objectives:

1. Control costs and increase revenues 2. Attract and retain employees

3 Factors that shape external competitiveness

1. Labor market factors 2. Product market factors 3. Organization factors

4 Pay level policies

1. Lead 2. Lag 3. Match 4. Flexible

Product market factors (2)

1. Product demand 2. Degree of competition

Objectives of external competitiveness (how it is expressed)

1. Setting a *pay level* (above, below, or equal to competitors) 2. Determining *mix of pay forms* relative to those of competitors

LABOR DEMAND: Efficiency wage (theory)

Above-market wages will improve efficiency by *attracting workers who will perform better and be less willing to leave*.

Pay form

Also known as *pay mix*, the various types of payments that make up total compensation

*Flexible* policy is only below market in

Base pay, above in the rest of pay mix

Dashboard

Changes the focus from emphasizing the relative importance of each form within a single company to *comparing each form by itself to the market* (many companies)

SUPPLY SIDE: Human capital (implication)

Higher pay is *required* to induce people to train for more difficult jobs.

What is a good reason to lag the market?

In return for promise of *higher future returns* (motivates employees)

SUPPLY SIDE: Reservation wage (theory)

Job seekers *will not accept jobs with pay below a certain wage*, no matter how attractive other job aspects.

Pay policy options: main focus is to

Match the competition

SUPPLY SIDE: Reservation wage (implication)

Pay level will affect ability to recruit.

LABOR DEMAND: Signaling (theory)

Pay policies *signal the kinds of behavior* the employer seeks.

LABOR DEMAND: Signaling (implication)

Pay practices must *recognize desired behaviors* with more pay, larger bonuses, and other forms of compensation.

Match policy is also called

Pay with competition policy

What do pay policy options avoid?

Placing an employer at a *disadvantage in pricing products* or in *maintaining a qualified work force*

Pay policy options *may not*:

Provide an employer with a *competitive advantage* in its labor markets

Product demand

Puts a lid on maximum pay level and employer can set

Pay level

Refers to the average of the array of rates paid by an employer (base + bonuses + benefits + value of stock holdings) / number of employees

External competitiveness

Refers to the pay relationships among organizations; the organization's pay relative to its competitors

LABOR DEMAND: Efficiency wage (implication)

Staffing programs must have the *capability of selecting the best employees,* work must be structured to *take advantage of employees' greater efforts*.

SUPPLY SIDE: Human capital (theory)

The *value of an individual's skills and abilities* is a function of the time and expense required to acquire them.

Dashboard is a comparison of

Total pay mix breakdown *vs. competitors*

LABOR DEMAND: Compensating wage differentials (theory)

Work with negative characteristics requires higher pay to attract workers.