CMS 2, Lesson 6

Is the marginal product directly measurable?

(6.10) No

The most common pay policy is to (match/lead/lag) rates paid by competitors.

(6.21) match

Which pay policy achieves competitive advantage?

(6.23) Research indicates that no one pay policy is the best.

What is the marginal revenue of labor?

(6.9) The marginal revenue of labor is the additional revenue generated when the firm employs one additional person, with other production factors held constant.

Which of the following is (are) correct statements about labor demand-and-supply theories and their implications? I. Signaling theory assumes that in the absence of complete information about a job, applicants make inferences about nonmonetary job attributes based on information about the pay system. II. Efficiency wage theory says that employers may deliberately design lower pay policies as part of a strategy to inform prospective and current employees of what kinds of behavior are sought. III. Work with negative characteristics requires higher pay to attract workers.

(6.0) I. Signaling theory assumes that in the absence of complete information about a job, applicants make inferences about nonmonetary job attributes based on information about the pay system. III. Work with negative characteristics requires higher pay to attract workers. Statement II is incorrect because efficiency wage theory does not state that employers may deliberately design lower pay policies as part of a strategy to inform prospective and current employees of what kinds of behavior are sought.

What type of policy maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay?

(6.21) Lead pay policy

External competitiveness is influenced by what three factors?

(6.5) 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 organization 3. Characteristics unique to each organization and its employees

Is the marginal revenue directly measurable?

(6.10) No

What term describes a product market that sets the upper limit within which an employer's pay level is set?

(6.17) Product demand

How are labor costs calculated?

(6.3) Labor costs = pay level X number of employees.

All the following statements regarding competitive pay policy alternatives are correct EXCEPT: A. A match policy places employers on an equal footing in their ability to attract and maintain a qualified workforce. B. A match policy may offer no competitive advantage in the marketplace. C. A lag policy, or offering rates lower than competitors, is primarily relevant to employers that want to attract and retain older employees. D. A lead policy maximizes the ability to attract and retain quality employees. E. A lead policy may, in the short run, mask managerial problems.

(6.0) C. A lag policy, or offering rates lower than competitors, is primarily relevant to employers that want to attract and retain older employees.

An employer's pay level: A. Should be set prior to job evaluation B. Defines the going market rate C. Can affect the size of the applicant pool D. Ignores employers' profits E. Is determined by the market analyst

(6.0) C. Can affect the size of the applicant pool

Identify two factors on which external competitiveness is expressed.

(6.1) 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

A manager using the marginal revenue product model to determine how many people to hire should do what two things?

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

The efficiency wage theory says that sometimes high wages may increase efficiency and actually lower labor costs if they do what five things?

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

What does the efficiency wage theory state?

(6.12) The efficiency wage theory says that sometimes high wages may increase efficiency and actually lower labor costs.

What process is closely related to and underlies the sorting effect?

(6.13) Signaling

What does the signaling theory state?

(6.13) Signaling theory says that employers deliberately design pay levels and mix as part of a strategy that signals to both prospective and current employees what kinds of behaviors are sought.

What term describes the effect that pay strategy has over the composition of the workforce - who is attracted and who is retained?

(6.13) Sorting

Define the term "sorting."

(6.13) Sorting is the effect that pay strategy has over the composition of the workforce - who is attracted and who is retained.

What is the premise of the theory of human capital?

(6.15) The theory of human capital is based on the premise that higher wages flow to those who improve their potential productivity by investing in themselves through additional education, training and experience.

Product ______ conditions to a large extent determine what the organization can afford to pay.

(6.16) market

Define the term "product demand."

(6.17) Product demand is a product market that sets the upper limit within which an employer's pay level is set.

What three organizational factors influence pay level and mix decisions?

(6.18) 1. Employee preferences 2. Employer size 3. Industry

Which organizations tend to pay more - large or small ones?

(6.18) There is consistent evidence that large organizations tend to pay more than small ones.

What three factors should be considered when defining relevant markets?

(6.19) 1. Competitors in the same product/service market 2. Geographic location of the organization 3. Occupations

What term describes the pay relationships among organizations or the organization's pay relative to its competitors?

(6.2) External competitiveness

What is external competitiveness?

(6.2) External competitiveness refers to the pay relationships among organizations or the organization's pay relative to its competitors.

What term refers to the mix of the various types of payments that make up total compensation?

(6.2) Pay form

What is a pay form?

(6.2) Pay forms refer to the mix of the various types of payments that make up total compensation.

What term describes the average of the array of rates paid by an employer?

(6.2) Pay level

What is a pay level?

(6.2) Pay level refers to the average of the array of rates paid by an employer.

What does a lag pay policy aim to do?

(6.21) A lag policy is one that pays below market rates and may hinder a firm's ability to attract potential employees.

What does a lead pay policy aim to do?

(6.21) A lead pay policy maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay.

What does a pay-with-competition policy aim to do?

(6.21) A pay-with-competition 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.

What type of policy pays below market rates and may hinder a firm's ability to attract potential employees?

(6.21) Lag policy

What type of 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?

(6.21) Pay-with-competition policy

Many nonunionized companies tend to (match/lead/lag) competition to discourage unions.

(6.21) match (or even lead)

What does a shared choice policy aim to do?

(6.22) A shared choice policy begins with the traditional alternatives of lead, meet or lag but then offers employees choices in the pay mix.

What does an employer-of-choice pay policy aim to do?

(6.22) An employer-of-choice policy goes beyond pay level and forms to focus on all returns from employment including a firm's overall reputation as a place to work.

What type of policy emphasizes performance, extensive training opportunities, challenging work assignments and the like?

(6.22) Employer-of-choice policy

What type of policy goes beyond pay level and forms to focus on all returns from employment including a firm's overall reputation as a place to work?

(6.22) Employer-of-choice policy

What type of policy begins with the traditional alternatives of lead, meet or lag but then offers employees choices in the pay mix?

(6.22) Shared choice policy

What type of policy gives employees more say in the forms of pay they receive?

(6.22) Shared choice policy

What is the least-risk approach to choosing a pay policy?

(6.23) The least-risk approach may be to set both pay level and pay mix to match the competition.

The higher the pay level relative to what competitors pay, the (greater/lesser) the relative costs to provide similar products or services.

(6.3) greater

Other things being equal, the higher the pay level, the (higher/lower) the labor cost.

(6.3) higher

Is there a single going rate in the labor market for a specific job?

(6.4) No

Economists describe two basic types of markets. What are they?

(6.6) Bourse and quoted price

What is the "bourse" market?

(6.6) Bourse is the negotiating over the terms and conditions until an agreement is made.

Theories of labor markets begin with four assumptions, one of which is that the markets faced by employers are ______, so there is not advantage for a single employer to pay above or below the market rate.

(6.7) competitive

Theories of labor markets begin with four assumptions, one of which is that the pay rates reflect all costs associated with ______.

(6.7) employment

Theories of labor markets begin with four assumptions, one of which is that people are ______ and, therefore, interchangeable.

(6.7) homogeneous

Theories of labor markets begin with four assumptions, one of which is that employers always seek to maximize ______.

(6.7) profits

The supply side of the market looks at potential (employees/employers).

(6.8) employees

The demand side of the market focuses on the actions of the (employee/employer).

(6.8) employer

What term describes the additional output associated with the employment of one additional person, with other production factors held constant?

(6.9) Product of labor

What term describes the additional revenue generated when the firm employs one additional person, with other production factors held constant?

(6.9) Revenue of labor

What is the marginal product of labor?

(6.9) The marginal product of labor is the additional output associated with the employment of one additional person, with other production factors held constant.