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7-1                    External Competitiveness: DeterminingPart                the Pay LevelII      Chapter 7 Defining Co...
7-2 STRATEGIC                                                                         STRATEGIC                           ...
7-3Chap r    te  7            Defining Competitiveness McGraw-Hill/Irwin   © 2002 by The McGraw-Hill Companies, Inc. All r...
7-4                         Learning ObjectivesAfter studying Chapter 7, students should be able to:1.   Explain the impor...
7-5          External competitiveness          refers to the pay relationships          among organizations - the         ...
7-6External competitiveness is expressed inpractice by:1. setting a pay level that is above,   below, or equal to competit...
7-7Pay level refers to the average of the array ofrates paid by an employer.Σ Base + Bonuses + Benefits + Options / Σ Empl...
7-8Pay level and mix focus attentionon two objectives:              Control Labor Costs                    Attract and Ret...
7-9Pay Level Decisions Impact Labor Costs                         Number ofLabor Costs          =                         ...
7 - 10What Shapes External Competitiveness?LABOR MARKET FACTORSLABOR MARKET FACTORSNature of DemandNature of DemandNature ...
7 - 11                       Labor Demand! The marginal product of labor is the additional  output associated with the emp...
7 - 12                       Supply and Demand at the Market and Individual                       Employer Level          ...
7 - 13     Labor Demand Theories and Implications    Theory                    Prediction                                 ...
7 - 14   Labor Supply Theories and Implications    Theory                    Prediction                                 So...
7 - 15Competitive Pay Policy Alternatives             Pay with Competition                                                ...
7 - 16            Pay Mix Policy Alternatives          Performance - Driven                          Market Match    Benef...
7 - 17  Some Consequences of Pay Levels          Contain operating                                               Increase ...
7 - 18                        Summary! There is no “going rate,” thus managers make conscious  pay level and mix decisions...
7 - 19                         Review Questions1. Distinguish policies on external competitiveness   from policies on inte...
7 - 20              Review Questions (continued)5. What is a relevant market? What difference does it   make when determin...
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Module 6 of compenssation !!!(1)

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Transcript of "Module 6 of compenssation !!!(1)"

  1. 1. 7-1 External Competitiveness: DeterminingPart the Pay LevelII Chapter 7 Defining Competitiveness Chapter 8 Designing Pay Levels, Mix, and Pay StructuresMcGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. 7-2 STRATEGIC STRATEGIC TECHNIQUES POLICIES OBJECTIVES Work Descriptions Evaluation/ INTERNAL ALIGNMENT Analysis Certification STRUCTURE EFFICIENCY • PerformanceCOMPETITIVENESS Market Surveys Policy PAY • Quality Definitions Lines STRUCTURE • Customers • Stockholders Seniority Performance Merit INCENTIVE • Costs CONTRIBUTORS Based Based Guidelines PROGRAMS FAIRNESS COMPLIANCEADMINISTRATION Planning Budgeting Communication EVALUATION McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  3. 3. 7-3Chap r te 7 Defining Competitiveness McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  4. 4. 7-4 Learning ObjectivesAfter studying Chapter 7, students should be able to:1. Explain the importance of external competitiveness to the pay model.2. Discuss the factors that influence external competitiveness.3. Discuss the difference between labor market, product market, and organizational factors in determining external competitiveness.4. Explain the different pay policy decisions and the consequences of using each. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  5. 5. 7-5 External competitiveness refers to the pay relationships among organizations - the organization’s pay relative to its competitors.McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  6. 6. 7-6External competitiveness is expressed inpractice by:1. setting a pay level that is above, below, or equal to competitors, and2. by considering the mix of pay forms relative to those of competitors. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  7. 7. 7-7Pay level refers to the average of the array ofrates paid by an employer.Σ Base + Bonuses + Benefits + Options / Σ EmployeesPay forms refer to the mix of the various types ofpayments that make up total compensation. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  8. 8. 7-8Pay level and mix focus attentionon two objectives: Control Labor Costs Attract and Retain EmployeesMcGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  9. 9. 7-9Pay Level Decisions Impact Labor Costs Number ofLabor Costs = x Pay Level Employees McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  10. 10. 7 - 10What Shapes External Competitiveness?LABOR MARKET FACTORSLABOR MARKET FACTORSNature of DemandNature of DemandNature of SupplyNature of SupplyPRODUCT MARKET FACTORSPRODUCT MARKET FACTORSDegree of CompetitionDegree of Competition EXTERNAL EXTERNALLevel of Product Demand COMPETITIVENESS COMPETITIVENESSLevel of Product DemandORGANIZATION FACTORSORGANIZATION FACTORSIndustry, Strategy, SizeIndustry, Strategy, SizeIndividual ManagerIndividual Manager McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  11. 11. 7 - 11 Labor Demand! The marginal product of labor is the additional output associated with the employment of one additional human resource unit, with other production factors held constant.! The marginal revenue of labor is the additional revenue generated when the firm employs one additional unit of human resources, with other production factors held constant. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  12. 12. 7 - 12 Supply and Demand at the Market and Individual Employer Level Market level Employer level Ma $100,000 $100,000 rg De in ma pr al r nd od ev uc en t ue Pay for business graduatesPay for business graduates $50,000 $50,000 Supply to ly individual pp Su employer $25,000 $25,000 0 5 10 15 20 25 Number of business graduates available Number of business graduates available McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  13. 13. 7 - 13 Labor Demand Theories and Implications Theory Prediction So What?Compensating Work with negative Job evaluation must collectdifferentials characteristics requires higher and compensable factors pay to attract workers. most capture these negative characteristics. Above-market wages will improve Staffing programs must haveEfficiency wage efficiency by attracting workers the capability of selecting the who will perform better and be best employees. Work must less willing to leave. be structured to take advantage of employees’ greater efforts. Pay policies signal the kinds of Pay practices must recognizeSignaling behavior the employer seeks. these behaviors by better pay, larger bonuses, and other forms of compensation. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  14. 14. 7 - 14 Labor Supply Theories and Implications Theory Prediction So What?Reservation wage Job seekers won’t accept jobs Pay level will affect ability to whose pay is below a certain recruit. wage, no matter how attractive other job aspects.Human capital The value of an individual’s skills Higher pay is required to and abilities is a function of the induce people to train for time and expense required to more difficult jobs. acquire them.Job competition Workers compete through As hiring difficulties increase, qualifications for jobs with employers should expect to established wages. spend more to train new hires. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  15. 15. 7 - 15Competitive Pay Policy Alternatives Pay with Competition Lead Policy (Match) Lag Policy Flexible Policies Employer of Choice Shared Choice McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  16. 16. 7 - 16 Pay Mix Policy Alternatives Performance - Driven Market Match Benefits Benefits 17% 20% Options 4%Options Base 50% Base 70% 16% Bonus 6% Bonus 17% Work - Life Balance Security (Commitment) Benefits 20% Benefits 30% Base 50% Base 80% Options 10% Bonus 10% McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  17. 17. 7 - 17 Some Consequences of Pay Levels Contain operating Increase pool of expenses (labor costs) qualified applicants Increase quality and experienceCompetitiveness of total compensation Reduce voluntary turnover Increase probability of Reduce pay-related union-free status work stoppagesMcGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  18. 18. 7 - 18 Summary! There is no “going rate,” thus managers make conscious pay level and mix decisions influenced by several factors.! There are both product market and labor market factors that impact the pay level and mix decisions.! Alternative pay level and mix decisions have different consequences.! Pay policies need to be designed to achieve specific pay objectives.! To achieve the objectives stipulated for the pay system, both the pay level and mix must be properly positioned relative to competitors. McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  19. 19. 7 - 19 Review Questions1. Distinguish policies on external competitiveness from policies on internal alignment. Why is external competitiveness so important?2. What factors shape an organization’s external competitiveness?3. What does marginal revenue product have to do with pay?4. What pay level does the efficiency wage theory predict? Does the theory accurately predict organization behavior? Why or why not? McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
  20. 20. 7 - 20 Review Questions (continued)5. What is a relevant market? What difference does it make when determining people’s pay?6. Can you think of any companies that follow a lag and/or lead policy? Why do they believe it pays to pay differently? Can you think of any companies that follow performance-driven and/or work-life balance policies? McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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