MGMT 434 Compensation Ch 7
If a lag pay-level policy is coupled with the promise of higher future returns, this combination may increase employee commitment and foster teamwork. A) True B) False
A) True
The higher the pay level relative to what competitors pay, the greater the relative costs to provide similar products or services. A) True B) False
A) True
The two consequences of external competitiveness are: It affects operating expenses and employee attitudes and work behaviors. A) True B) False
A) True
The _____ theory predicts that work with negative characteristics requires higher pay to attract workers. A) compensating differentials B) efficiency wage C) surplus value D) signaling
A) compensating differentials
Marginal product of labor
Additional output associated with employment of one additional human resources unit, with other production factors held constant Decreases with increasing new hires; each new hire has less utilization of fixed resources
Marginal revenue of labor
Additional revenue generated when firm employs one additional unit of human resources, with other production factors held constant Also decreases with each additional new hire Will keep hiring until benefit (income) equals cost (wage) This is the marginal product revenue
In the short run, an employer cannot change any factor of production except human resources
An employer's level of production can change only if it changes the level of human resources An employer's demand labor coincides with the marginal product of labor
Orgs may pay more to...
Attract more productive/better trained workers Reduce turnover costs
Shared choice begins by offering employees choices in the pay mix. A) True B) False
B) False
Which of the following is not a factor that affects decisions on pay level and mix? A) Competition in the labor market for people with various skills B) Federal and state laws governing pay rates C) Competition in the product and service markets D) Characteristics unique to each organization and its employees
B) Federal and state laws governing pay rates
The _____ theory is based on the premise that higher earnings flow to those who improve their potential productivity by investing in themselves. A) surplus value B) differential wage C) human capital D) efficiency wage
C) human capital
Pay level and pay mix decisions focus on:
Controlling costs Attracting and retaining employees Maximizing productivity
Orgs may pay less to...
Controlling costs Differentiate on non-financial returns
Which of the following is not a basic assumption of labor market theories? A) Employers always seek to maximize profits. B) The markets faced by employers are competitive. C) The pay rates reflect all costs associated with employment. D) People are heterogeneous and therefore not interchangeable.
D) People are heterogeneous and therefore not interchangeable.
Product market factors
Degree of competition Level of product demand
Research evidence states:
Higher wages associated with lower shirking (measured as number of disciplinary layoffs) Inconclusive evidence on if it was cut enough to offset higher wage bill Higher wages do attract more qualified applicants Also attract more unqualified applicants
Degree of competition
In highly competitive markets, employers are less able to raise prices without loss of revenues
Organization factors
Industry, strategy, size Individual manager
How an org compares competitively
Is relative; depends on what competitors we compare Depends on what pay forms are included For example, may lead with base pay, lag in benefits -There is no such thing as a "going rate" or "market rate" for any job.
What shapes external competitiveness?
Labor market factors Product market factors Organization factors
Orgs may have different pay levels for different job families
Marketing above market, engineers below market This would support orgs where marketing is key
Labor Supply. Upward sloping supply curve:
More people willing to take a job as pay increases
Labor market factors
Nature of demand Nature of supply
Two key product market factors affect ability of a firm to change price of its products or services
Product demand Degree of competition
Product Demand
Puts a lid on maximum pay level an employer can set
Labor Supply. Assumptions on behavior of potential employees
Several job seekers Possess accurate information about all job openings No barriers exist to mobility among jobs
Analysis of labor demand indicates...
how many employees will be hired by an employer
Labor Supply. If unemployment rates are low,
offers of higher pay may not increase supply
Labor Costs equal
pay level x number of employees
What is external competitiveness?
refers to pay relationships among organizations - an organization's pay relative to its competitors.
What is pay level?
refers to the average of the array of rates paid by an employers: (base + bonuses + benefits + value of stocks)/number of employees.
What are pay forms?
the various types of payments, or pay mix, that make up total compensation.
Given the choice to match, lead, or lag, the most common policy is to lead rates paid by competitors. A) True B) False
B) False
The _____ is the additional output associated with the employment of one additional person, with other production factors held constant. A) incremental output B) marginal product of labor C) surplus output of labor D) differential output of labor
B) marginal product of labor
External competitiveness is expressed in practice by:
Setting a pay level that is above, below, or equal to that of competitors (size of the "pie") Determining mix of pay forms relative to those of competitors (pieces of the "pie")
