MGT of Compensation Chapter 7

Nations that have lower average labor costs display a tendency to have ____.

lower average productivity

The ____ is the increase in returns generated by the employment of one additional person by a firm, while keeping other production factors constant.

marginal revenue of labor

The most common competitive pay-level policy involves ____.

matching competitors' wage rates

According to economic theory, a talented individual will have a higher marginal value when the individual is ____.

employed at a large organization

Product market factors (categories of factors that shape external competitiveness)

-ex: Level of competition and degree of product demand

The level of demand that ____ is that level at which the marginal revenue of the last hire in the company equals the pay for that employee.

maximizes profits for a company

One of the negative effects of a ____ is that it forces an employer to raise the wages of current workers in order to avoid internal misalignment and murmuring.

lead pay-level policy

Which combination may boost employee commitment and encourage teamwork, which may in turn improve productivity?

A lag pay-level policy combined with the promise of increased future returns

Identify an accurate statement about a reservation wage.

A reservation wage may be more than or less than the market wage.

An employer cannot alter most factors of production, such as technology, capital, or natural resources, in the short term. Thus, it can only alter its level of production if it alters the level of human resources. In these conditions, a single employer's labor demand coincides with the ____.

marginal product of labor

In a study conducted to determine the effects of sorting and signaling strategies, it was determined that pay level held more significance for ____.

materialists than for the risk-averse

Diminishing marginal productivity for each new employee added to a firm arises from the fact that each new employee ____.

has access to a progressively smaller portion of other factors of production

Labor market factors (categories of factors that shape external competitiveness)

-ex: Nature of demand for employees and nature of supply of employees

A lead policy (type of pay-level and pay-mix strategies)

-types of jobs companies use them for: Companies use this policy for jobs requiring skills that are critical to their success.

The marginal product and the marginal revenue of a new hire are not directly measurable quantities.

True. (In most organizations, it is almost impossible to quantify the goods or services produced by an individual employee, since most production is through joint efforts of employees with a variety of skills. So neither the marginal product nor the marginal revenue of the employee is directly measurable.)

It is enough for an employer to pay at or above the legal minimum wage in order to be considered to be in compliance.

False. (must also meet provisions of prevailing wage laws and equal rights legislation)

When is paying employees above market an efficient strategy for an organization?

When the organization's revenues exceed the strategy's expenses

What are the only things that a manager using the marginal revenue product model must do?

Calculate the pay level set by market forces Calculate the marginal revenue generated by each new hire

Which of the following is a reason for differing pay rates in the labor market and is difficult to document due to the inability to accurately measure and control the factors that go into a net-advantage calculation?

Compensating differentials

"____" refers to the image or brand a company projects as an employer.

Employer of choice

Each job in the labor market has a fixed "going rate."

False. (Different employers set different pay levels, deliberately choose to pay above/below what others are paying for the same work. so no single "going rate" in the labor market for a specific job.)

Some reservation-wage theorists say that job seekers accept the first job offer they receive where the pay is below their reservation wage.

False. (Some reservation-wage theorists say that job seekers accept the first job offer they receive where the pay meets their reservation wage. This seeks to explain differences in workers' responses to offers.)

According to a study on managers' approaches to pay decisions under varying economic conditions, how did level of unemployment affect wage adjustment recommendations?

It had almost no impact on wage adjustment recommendations.

A lag policy (type of pay-level and pay-mix strategies)

-types of jobs companies use them for: Companies use this policy for jobs that can be easily filled in the local labor market.

A match policy (type of pay-level and pay-mix strategies)

-types of jobs companies use them for: Companies use this policy for jobs that require skills that are not very critical to their success.

Calculate the number of employees in a company with a pay level of $43,000 and labor costs of $10,750,000.

250 employees Labor costs = (pay level) * (# of employees)

Identify an accurate statement about the pay level in a company.

A company may have varying pay levels for different job families.

A high-wage, high-services strategy (types of organizational pay-level and pay-mix strategies)

A company that ensures that its highly-paid employees maintain a balance between their work and their personal lives

A low-wage, high-services strategy (types of organizational pay-level and pay-mix strategies)

A company that offers many services for the improvement of its low-wage employees

A low-wage, no-services strategy (types of organizational pay-level and pay-mix strategies)

A company that outsources in order to compete by producing its goods and services for the lowest compensation possible

What are the objectives that pay-level and pay-mix decisions focus on?

Attracting and keeping employees Controlling expenses and raising revenues

what does point A refer to? (marginal revenue product, and line for supply to individual employer)

Marginal revenue product

Which of the following options reduces labor expenses when people flow to the work?

Segmenting the source of labor

Identify the way of reporting an organization's mix of pay forms that is depicted in the image.

The dashboard

Which of the following labor supply theories explains pay-level differences on the premise that higher wages flow to people who invest in themselves to increase their potential productivity?

The theory of human capital

Matching the market wage and offering no performance-based pay (sorting and signaling strategy)

This strategy is most likely to appeal to people who just want to show up and are risk-averse.

When will an employer face no increase in labor supply even after raising its pay level?

When competitors quickly meet the employer's higher offer

Having a lag pay-level policy may impede an organization's ability to ____.

attract job applicants

The dashboard form of reporting the mix of pay forms of a company focuses on ____.

comparing each pay form to the market

The higher wages that employees offer to make up for the negative characteristics of a job are known as ____.

compensating differentials

In both the quoted-price market and the bourse, ____ function as the buyers and ____ function as the sellers.

employers; job applicants

An employer will keep hiring until the marginal revenue generated by the last hire equals the ____.

expenses associated with employing that person

Research has proven that in manufacturing, productivity has a positive correlation with ____.

hourly wage level

In the short term, a company's factors of production are ____, which causes each new hire to have lower marginal productivity than the previous hire.

inalterable

A benefit of a lead pay-level policy is that it ____.

offsets less appealing features of work

Technology-intensive industries tend to ____ than labor-intensive industries.

pay higher

Evidence has consistently proven that large organizations tend to _____ than do small organizations.

pay higher wages

There is evidence that organizations that widely use high-performance work practices and computer-based technology and employ higher-skilled employees ____.

pay higher wages

A pay-with-competition policy attempts to ensure than an organization's labor costs are approximately the same as those of its ____ and that its ability to attract potential employees is approximately the same as its ____.

product market competitors; labor market competitors

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

rent

Companies with higher profits than competitors can share this success with employees by leading competitors' pay levels and/or through bonuses that are tied to profitability. Academics view this as ____.

rent sharing

Employers in markets with no competition have the ability to ____.

set whatever price they desire

One of the ways in which employers make pay cuts in times of high unemployment is by requiring employees to ____.

take furloughs without pay

A study on how economic factors translated into wage decisions for managers found that the profitability of a company was viewed by managers as a factor for higher management in determining ____.

the general pay budget

Greatly improved communication and software connectivity have accelerated ____.

the growth of offshoring

Stores that fix the price of each item or ads that mention the starting wage of a job opening are examples of ____, whereas organizations that permit haggling over the terms and conditions until a consensus is reached are examples of ____.

the quoted-price market; the bourse

A lead pay-level policy is capable of masking negative job traits that lead to higher ____ later on.

turnover

The concept of upward sloping supply in theories of labor markets assumes that as wage rates increase, more people are willing to take a job. However, offers of increased pay may not boost labor supply when ____.

unemployment rates are low

The option of off-shoring to reduce labor expenses is also described as ____.

work flowing to the people

Identify the factors that shape external competitiveness.

-Attributes unique to each company -Competition in the labor market for applicants with various skills -Competition in the product and service markets

What are the assumptions that theories of labor markets usually begin with?

-People are homogeneous and thus interchangeable. -All costs associated with employment are reflected in pay rates. -Employers always aim to maximize profit. -A single employer has no advantage to pays below or above the market rate.

Organization factors (categories of factors that shape external competitiveness)

-ex: Nature of the industry, company strategy and size, and characteristics of individual managers

How is external competitiveness expressed in practice?

By setting the pay mix in relation to those of competitors By establishing a pay level that is greater than, less than, or equal to that of competitors

When are the data from product market competitors likely to be given greater weight than that of labor market competitors in defining a relevant market?

-When demand for a product is responsive to price changes -When employee abilities are specific to the product market -When labor expenses form a large share of total expenses -When labor supply is not responsive to pay changes

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

Shared Choice

Paying below the market for base pay yet offering generous bonuses (sorting and signaling strategy)

This strategy is most likely to appeal to risk-takers who seek flexible schedules, more interesting projects, or more opportunities for promotion.

While ____ put a floor on the pay level needed to attract sufficient employees, ____ put a lid on the highest pay level than an employer can set.

labor market conditions; product market conditions

Calculate the pay level of an organization that has labor costs of $16,000,000 for 400 employees.

$40,000

Calculate the labor costs for a company with 300 employees and a pay level of $21,000.

$6,300,000 Labor costs = (pay level) * (# of employees) => 21000 * 300 = 6300000

Identify the various extremes of organizational pay-level and pay-mix strategies that exist on the continuum of possible organizational strategies.

-A high-wage, high-services strategy -A low-wage, high-services strategy -A low-wage, no-services strategy

Due to restrictions placed by the product market on an employer's pay level, what strategies must an employer use to compensate for paying above the maximum?

-Allocating a large share of total revenues to cover labor expenses -Passing the higher pay level on to consumers by increasing prices

Identify the characteristics of jobs that are thought to make them more susceptible to offshoring.

-Easy to transmit inputs/outputs electronically -Easy to routinize -Little need for worker interaction -Little need for local insight on unique social and cultural factors

According to the efficiency-wage theory, under which of the following conditions do high wages increase efficiency and reduce labor costs?

-If they boost worker effort and decrease shirking behavior -If they decrease turnover -If they lower the need to supervise employees -If they lure higher-quality applicants

What are the effects of offering high wages in a lead pay-level policy?

-Reduced vacancy rates and training time -Reduced turnover and absenteeism

How do managers choose their relevant labor markets?

-They evaluate the importance of a job to their organization's success -The consider the products, size, and location of competitors -They look at the skills and knowledge required for a job

Identify the pay-level and pay-mix strategy with the least risk.

A match policy

What is the effect of the introduction of new technology within an industry that reduces the skills required of employees?

It causes the employees' average pay to decline.

____ provided by an employer are considered integral to every citizen's economic security and are regulated in most countries.

Pensions and health care

One of the common cuts companies make in times of high unemployment is decreasing ____.

contributions to 401k retirement plans

According to agency theory, companies must allot resources to systems that track employee output, which becomes more costly and difficult when ____.

cultural or geographic distance is great

The higher the pay level of an organization relative to what its competitors pay, the ____

greater the costs to provide comparable products or services

Employers in extremely competitive markets find it more difficult than other employers to ____.

increase prices without loss of revenues

According to the theory of human capital, improving productive skills by making investments in training will raise one's ____.

marginal product

According to the theory of human capital, the wages of new hires match the value of their ____.

marginal product

the point at which the labor demand line and the labor supply line cross is called the ____.

market rate