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.