CH. 7: Defining Competitiveness

According to efficiency-wage theory, high wages may increase efficiency and actually lower labor costs if they: (5)

1. Attract higher quality applicants 2. Lower turnover 3. Increase worker effort 4. Reduce Shirking 5. Reduce the need to supervise employees (monitoring)

Labor Demand Theory Modifications: (3)

1. Compensating Differentials 2. Efficiency Wage 3. Signaling

Pay-level and pay-mix decisions focus on two objectives: (2)

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

A Manager using the marginal revenue product model must do only 2 things:

1. Determine the pay level set by market forces. 2. Determine the marginal revenue generated by each new hire.

4 Basic assumptions of Labor Markets

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

What shapes External Competitiveness? (3)

1. LABOR MARKET FACTORS. Competition in the labor market for people with various skills. 2. ORGANIZATION FACTORS. Competition in the product and service markets which affects the financial condition of the organization. 3. PRODUCT MARKET FACTORS. Characteristics unique to each organization and its employees, such as its business strategy, technology, and the productivity.

What explains difference in compensation/benefit offers to new hires? (3)

1. Location 2. The Work 3. Industry

3 Factors usually used to determine the relevant labor markets:

1. Occupation (Skill/knowledge required) 2. Geography 3. Competitors

2 Major Consequences of External Competitiveness

1. Operating Expenses 2. Employee attitudes and work behaviors

4 Alternative for Pay Mix

1. Performance driven 2. Market Match 3. Work/Life Balance 4. Security

Two key product market factors:

1. Product Demand 2. Degree of Competition

2 Basic Types of Markets

1. Quoted Price 2. Bourse

External Competitiveness is expressed in practice by: (2)

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

3 Conventional Pay Level Policies

1. to lead 2. to meet 3. to follow competition

- Related to the efficiency wage model. -

Ability to Pay

The basic cash compensation that an employer pays for the work performed. Tends to reflect the value of the work itself and ignore differences in individual contributions.

Base Wage

Stores that allow haggling until an agreement is reached. AKA Ebay

Bourse

Define what organizations value. Input rather than value of output.

Compensable Factors

Economic theory that attributes the variety of pay rates in the external labor market to differences in attractive as well as negative characteristics in jobs. Pay differences must overcome negative characteristics to attract employees.

Compensating Differentials

Work with negative characteristics requires higher pay to attract/retain workers.

Compensating Differentials

Skill based plans work best in orgs using what type of strategy?

Cost-Cutter

Each additional employee has a progressively smaller share of production factors to work with.

Diminishing Marginal Productivity

Above-market wage/pay level will improve efficiency by attracting higher-ability workers and by discouraging shirking because of risk of losing high-wage job. A high-wage policy may substitute for intense monitoring.

Efficiency Wage

The view that a forms external wage competitiveness is just one facet of its overall human resource policy and that competitiveness is more properly judged on overall policies. Challenging work great colleagues, or an organizations prestige must be factored into an overall consideration of attractiveness.

Employer of Choice

Comparisons with other employers that hire people with the same skills.

External Competitiveness

Refers to the pay relationships among organizations - the organizations pay relative to its competitors.

External Competitiveness

Fuzzy

F

who sets the minimum wage

Govt - f

General and specific skills require an investment in human capital. Firms will invest in for-specific skills, but not general skills. Worker must pay for investment in general skills.

Human Capital

Higher earnings flow to those who improve their potential productivity by investing in themselves.

Human Capital

What is the largest part of performance driven policies?

Incentives and Stock Options

Job requirements may be relatively fixed. Thus, workers may compete for jobs based on their qualifications, not based on how low of a wage they are willing to accept. Thus, wages are sticky downward.

Job Competition

Labor Cost Formula

Labor Costs = (pay level)*(number of employees)

The employment level organizations require. An increase in wage rates will reduce the demand for labor, other factors constant. Thus, the labor demand curve is downward sloping.

Labor Demand

This model assumes that many people are seeking jobs, that they possess accurate information about all job openings, and that no barriers to mobility exist.

Labor Supply

A wage structure that is set to match market rates at the beginning of the plan year only. The rest of the plan year, internal rates will lag behind market rates. Its objectives is to offset labor costs, but it may hinder a firms ability to attract and retain quality employees.

Lag Pay-Level Policy

Best pay policy for bank tellers.

Lag pay-level

Maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay.

Lead Pay-Level Policy

The additional output associated with the employment of one additional person, with the employment of one additional person, with other production factors held constant.

Marginal Product of Labor

The additional revenue generated when the firm employs one additional person, with other production factors held constant. AKA - How many you can hire and still be profitable.

Marginal Revenue of Labor

Mimics the pay mix competitors are paying.

Market Match

According to a survey the primary job evaluation is?

Market Pricing

Where the lines for labor demand and labor supply cross.

Market Rate

Leadership, customer orientation, functional expertise are examples of?

Organization Specific

Refers to the various types of payments, or pay forms, that make up total compensation.

Pay Mix

The most widely used point method job evaluation.

Pay Plan

A function of the discrepancy between employees perceptions of how much pay hey should receive and how much pay they do receive. If these perceptions are equal, an employee is said to experience personal satisfaction.

Pay Satisfaction

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

Pay level

(base + bonuses + benefits + value of stock holdings) / number of employees

Pay level formula

Tries to ensure than an organization's wage cost are approximately equal to those of its product competitors and that its ability to attract applicants will be approximately equal to labor market competitors.

Pay-with-competition policy

Store that label ads

Quoted Price

Stores that label each items price or ads that list a jobs opening starting wage.

Quoted Price

Those employers with which an organization competes for skills and products/services. 3 factors commonly used to determine the relevant markets are the occupation or skills required, the geography and employers that compete in the product market.

Relevant Markets

A return (profits) received from activities that are in excess of the minimum (pay level) needed to attract people to those activities.

Rent

Job seekers wont accept jobs if pay is below a certain wage, no matter how attractive other job aspects.

Reservation Wage

People that take the first job offer they get where the pay meets their reservation wage.

Satisfiers

Begins with the traditional alternatives of lead, meet, or lag. But it then adds a second part, which is to offer employees choices (within limits) in the pay mix.

Shared Choice

The effect that pay strategy has on the composition of the workforce - who is attracted and who is retained.

Signaling Theory

What theory is more useful in understanding pay mix?

Signaling Theory

Pay policies signal to applicants the attributes that fit the organization. Applicants may signal their attributes by the investments they have made themselves.

Sorting and Signaling

In determining mirror

T

Many employers use market surveys to valid their own results.

T

Pay range exists when at least two employees in the same job are paid different rates.

T

Relevant labor markets

T

Studies have shown that the use of variable pay is related to an organizations improved financial performance but that pay level is not. (T/F)

T

Technology industries tend to pay more than service industries. (T/F)

T

The complete pay package package for employees, including all forms of money, bonuses, benefits, services, and stocks.

Total Compensation

The analysis of utility, the dollar value created by increasing revenues and or decreasing costs by changing one or more human resource practices. IT has most typically been used to analyze the payoff to making more valid employee hiring/selection decisions.

Utility Theory