Chapter 7 Defining Competitiveness

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• Chapter 7 Defining Competitiveness
• Chapter 8 Designing Pay Levels and Pay
  Structures

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STRATEGIC ISSUES
TECHNIQUES
STRATEGIC OBJECTIVES
Work Descriptions Evaluation
INTERNAL analysis
certification STRUCTURE
CONSISTENCY
EFFICIENCY Performance Quality Customer
Cost EQUITY COMPLIANCE
Market Surveys Policy
PAY definitions lines
STRUCTURE
COMPETITIVENESS
Seniority Performance Merit
INCENTIVE based based
guidelines PROGRAMS
CONTRIBUTORS
ADMINISTRATION
Planning Budgeting Communication EVALUATION
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• Defining Competitiveness

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External competitiveness refers to the pay
relationships among organizations - the
organizations pay relative to its
competitors. Pay level refers to the average of
the array of rates paid by an employer.
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External Competitiveness

• The two key decisions regarding external
  competitiveness are
• Determining what competitors are paying
• Setting pay levels relative to competitors

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Pay level focuses attention on two objectives
Control Labor Costs
Attract and Retain Employees
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Pay Level Decision Impacts Labor Cost
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What Shapes External Competitiveness?
PRODUCT MARKET FACTORS
Degree of Competition Level of Product Demand
EXTERNAL COMPETITIVENESS
ORGANIZATION FACTORS
LABOR MARKET FACTORS
Nature of Supply Nature of Demand
Industry Strategy Size Manager
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Labor Demand Theories and Implications
Theory Prediction
So What?
Compensating differentials
Work with negative character-istics requires
higher pay to attract workers.
Job evaluation must collect and compensable
factors most capture these negative
characteristics.
Efficiency wage
Above-market wages will im-prove efficiency by
attracting workers who will perform better and be
less willing to leave.
Staffing programs must have the capability of
sel-ecting the best employees. Work must be
structured to take advantage of employ-ees
greater efforts.
Pay policies signal the kinds of behavior the
employer seeks.
Pay practices must recog-nize these behaviors by
better pay, larger bonuses, and other forms of
compensation.
Signaling
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Labor Supply Theories and Implications
Theory Prediction
So What?
Reservation wage
Job seekers wont accept jobs whose pay is below
a certain wage, no matter how attract-ive other
job aspects.
Pay level will affect ability to recruit.
Human capital
The value of an individuals skills and abilities
is a function of the time and expense required to
acquire them.
Higher pay is required to induce people to train
for more difficult jobs.
Workers compete through qualifications for jobs
with established wages.
As hiring difficulties increase, employers should
expect to spend more to train new hires.
Job competition
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PRODUCT MARKET FACTORS

• Product Demand The product market sets the upper
  limit for an employers pay level
• Degree of Competition Employers in highly
  competitive markets will be less able to raise
  prices without loss of revenues

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ORGANIZATIONAL FACTORS

• Industry
• Labor intensive technologies necessitate more
  employees and therefore tend to pay less.
• Industries with non-labor intensive technologies
  can afford to pay higher wages since wages have
  less impact on total costs of production

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ORGANIZATIONAL FACTORS

• Employer Size Large organizations tend to pay
  higher wages
• Organization Strategy Pay strategy should fit
  organizational strategy
• Individual Managers
• Managers may not always act in rational ways but
  may employ behavioral devices such as
  representativeness and anchoring.

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Defining the MarketFactors To Consider

• Occupations Skill required for an occupation
  limit ease of mobility between fields.
• Geography Establishes how far employee would be
  willing to move, or how far employers would be
  willing to search to find qualified employees.
• The geographic scope of the relevant market
  tends to increase as the qualifications for the
  work increases

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Defining the MarketFactors To Consider

• Product Market Competitors
• Critical when organizations are labor intensive
• have high recruiting costs
• difficulty attracting employees
• when demand for the product is elastic and
  supply of labor is inelastic and labor skills are
  specific to the product market.

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Competitive Pay Policy Options Pay With the
Competition (Match) 1 of 2

• attempts to ensure that an organizations wage
  costs are approximately equal to those of its
  product competitors and
• that its ability to attract people for employment
  will be approximately equal to its labor market
  competitors

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Competitive Pay Policy Options Pay With the
Competition (Match) 2 of 2

• avoids placing an employer at a disadvantage in
  pricing products or in maintaining a qualified
  work force
• may not provide an employer with a competitive
  advantage in its labor markets.

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Competitive Pay Policy Options Lead Policy

• maximizes the ability to attract and retain
  quality employees and minimizes employee
  dissatisfaction with pay
• may offset less attractive features of the work
• a lead policy only when hiring new employees may
  lead to dissatisfaction of current employees.

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Competitive Pay Policy OptionsLag Policy

• Setting a lag policy to follow competitive rates
  may hinder a firms ability to attract potential
  employees.
• If pay level is lagged in return for the promise
  of higher future returns, this may increase
  employee commitment and foster teamwork this may
  possibly increase productivity.

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Hybrid Pay Policies (1 of 2)

• Employers have more than one pay policy.
• Policy may vary for different occupational
  families
• above market for critical skill groups
• below or at market for others

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Hybrid Pay Policies (2 of 2)

• Policy may vary for different pay elements
• above market in total compensation
• below market in base pay
• above market in incentives rewards
• at or above market in benefits

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Employer of Choice

• An employer of choice policy is more complex than
  the other options.
• It defines compensation more broadly to include
  all forms of returns.
• Thus, an organizations position is based on
  total returns of working for it.

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Consequences of Pay Level Decisions

• Contain labor costs
• Increase pool of qualified applicants
• Increase quality and experience
• Reduce voluntary turnover
• Increase probability of union-free status
• Reduce pay-related work stoppages