MGMT 472 Chapter 7
What organizational factors affect pay level and pay mix?
- Industry and Technology - Employer Size - People's Preference - Organization Strategy
Competitive Pay Policy Alternatives
- Match Pay - Lead Policy - Lag Policy - Flexible Policies - Employer of Choice - Shared Choice
What three factors determine relevant labor markets?
- Occupation - Geography - Competitors
How is external competitiveness expressed in practice?
- Setting a pay level that is above, below, or equal to that of competitors. - Determining the mix of pay forms relative to those of competitors
Assumptions on behavior of potential employees
- Several job seekers - Possess accurate information about all job openings - No barriers exist to mobility among jobs
What shapes external competitiveness?
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, such as, its business strategy, technology, and the productivity and experience of its workforce.
Two objectives of external competitiveness
1. Controlling costs 2. Attracting and retaining employees
Theories of Labor Markets begin with four assumptions
1. Employers always seek to maximize profits 2. People are homogeneous and therefore interchangeable 3. Pay rates reflect all costs associated with employment 4. Markets faced by employers are always competitive, so no advantage for a single employer to pay above or below market wage.
What other factors affect supply of labor that aren't accounted for in human capital?
1. Geographic barriers 2. Union requirements 3. Lack of info about other job openings 4. Risk 5. Unemployment
Necessary Conditions for Efficiency Wage Theory
1. Organizations paying higher wages need good selection tools to separate the qualified from unqualified applicants. 2. Organizations need to determine if greater effort by better employees & fewer supervisors justify higher wages.
Two key product market factors affecting ability of a firm to change price of its products or services
1. Product demand 2. The degree of competition
Segmented Labor Market
A labor supply that comes from multiple markets. Some employees may come from different global locations, may receive different pay forms, and may have varied employment relationships.
Lead Policy
Based on efficiency wage theory
Shared Choice
Begins with company strategy, but offer employees pay mix choices
Signaling Theory
Employers deliberately design pay levels and mix as part of a strategy that signals to both prospective and current employees the kinds of behavior that are sought.
Reservation Wage
Everyone has a bottom line wage.
Rent Sharing
Firms with greater profits than the competitors are able to share this success with their employees by "leading competitors' pay levels and/or via bonuses that vary with profitability.
Efficiency Wage Theory
High wages may increase efficiency and actually lower labor costs if they: 1. Attract higher quality applicants 2. Lower turnover 3. Increase worker effort 4. Reduce shirking 5. Reduce the need to supervise employees
Does reservation wage theory work on other pay forms too, or just base pay?
It works on things such as health care.
Non-compensatory Pay
Job seekers have a reservation wage level below which they will not accept a job offer, no matter how attractive the other job attributes
Employer of choice
Name recognition i.e. Disney, TV, Sports
Flexible Policies
Offering choices among different returns
Agency Theory
People pursue their own interests
What does it mean to "increase one's marginal product"?
Produce more because you improved your ability to produce
Pay Level
Refers to the average array of rates paid by an employer.
External Competitiveness
Refers to the pay relationships among organizations- the organization's pay relative to its competitors.
*Marginal Product of Labor
The additional output associated with the employment of one additional person, with other production factors held constant.
*Marginal Revenue of Labor
The additional revenue generated when the firm employs one additional person, with other production factors held constant.
Market Rate
The lines for labor demand and labor supply intersect.
*Marginal Revenue Product
The point on the graph at which the incremental income generated by an additional employee equals the wage rate.
Quoted Price Market
The price is fixed (graduating seniors usually work here)
Pay Mix
The various types of payments that make up total compensation.
How are labor costs determined?
They are based off of the pay level. More employees = more costs
Satisficer
They take the first pay offer they receive where the pay meets their reservation wage.
What do employers choose their relevant markets based on?
They usually focus on competitors' products, locations and size, and the jobs' skills and knowledge required.
Lag Policy
Usually have a benefit I.E. Disney
Bourse Market
You can negotiate the price
What does human capital theory suggest about pay level differences?
You want more money so you value yourself more.