Tài Liệu Lecture Compensation Management Unit 5 - Defining Competitiveness.pdf

8/17/2021 1 Unit 5 Defining Competitiveness Instructor Associate Prof Dr Pham Thi Bich Ngoc National Economics University Outlines • Compensation Strategy External Competitiveness • What Shapes Extern[.]

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Unit 5:

Defining Competitiveness

Instructor: Associate Prof Dr Pham Thi Bich Ngoc

National Economics University

Outlines

• Compensation Strategy: External Competitiveness

• What Shapes External Competitiveness?

• Labor Market Factors

• Modifications to the Demand Side

• Modifications to the Supply Side

• Product Market Factors and Ability to Pay

• Organization Factors

• Relevant Markets

• Competitive Pay Policy Alternatives

• Consequences of Pay-Level and -Mix

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COMPENSATION STRATEGY: EXTERNAL

COMPETITIVENESS

• External competitiveness refers to the pay

relationships among organizations—the

organization’s pay relative to its competitors

• Pay level refers to the average of the array of rates

paid by an employer: (base + bonuses + benefits +

value of stock holdings) / number of employees

• Pay forms are the various types of payments, or

pay mix, that make up total compensation

COMPENSATION STRATEGY: EXTERNAL

COMPETITIVENESS

• External competitiveness is expressed in practice by

(1) setting a pay level that is above, below, or equal

to that of competitors; and (2) determining the mix

of pay forms relative to those of competitors

• Both pay level and pay mix decisions focus on two

objectives: (1) control costs and increase revenues

and (2) attract and retain employees

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Control Costs and Increase Revenues

• Pay level decisions have a significant impact on

expenses

Labor costs = (pay level) x (number of employees)

• Paying employees above market: an effective or

ineffective strategy?

Attract and Retain the Right Employees

• Pay rate vs non-financial compensation

• Base salary vs total rewards

• Different employers set different pay levels; that is,

they deliberately choose to pay above or below

what others are paying for the same work

→That is why there is no single “going rate” in the

labor market for a specific job

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Attract and Retain the Right Employees

• Companies often set different pay-level policies for

different job families

• How a company compares to the market depends

on what competitors it compares to and what

pay forms are included

Market-competitive pay systems

• Market-competitive pay systems represent companies’

compensation policies that fit the imperatives of their

competitive advantage

• These systems play a significant role in attracting and

retaining the most qualified employees

• Based on four activities

• Conducting strategic analyses which entails an examination of

a company’s external market factors

• Assessments of competitors’ pay practices with

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What Shapes External Competitiveness?

LABOR MARKET FACTORS

• How Labor Markets Work

four basic assumptions:

• Employers always seek to maximize profits.

• People are homogeneous and therefore

interchangeable.

• The pay rates reflect all costs associated with

employment (e.g., base wage, bonuses, holidays,

benefits, even training).

• The markets faced by employers are competitive, so

there is no advantage for a single employer to pay above

or below the market rate

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• How Labor Markets Work

four basic assumptions:

• Employers always seek to maximize profits.

• People are homogeneous and therefore

interchangeable.

• The pay rates reflect all costs associated with

employment (e.g., base wage, bonuses, holidays,

benefits, even training).

• The markets faced by employers are competitive, so

there is no advantage for a single employer to pay above

or below the market rate

• The demand side focuses on the actions of the

employers: how many new hires they seek and

what they are willing and able to pay new

employees

• The supply side looks at potential employees: their

qualifications and the pay they are willing to accept

in exchange for their services

• The market rate is where the lines for labor demand

and labor supply cross.

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• Labor Demand: In short run, a single employer’s

demand for labor coincides with the marginal

product of labor.

• The marginal product of labor is the additional

output associated with the employment of one

additional person, with other production factors held

constant.

• The marginal revenue of labor is the additional

revenue generated when the firm employs one

additional person, with other production factors held

constant

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• Labor Supply

• upward sloping supply assumes that as pay increases, more people

are willing to take a job.

But if unemployment rates are low, offers of higher pay may not

increase supply— everyone who wants to work is already working

• If competitors quickly match a higher offer, the employer may face a

higher pay level but no increase in supply

• The result was that the supermarket was paying more for the

employees it already had but was still shorthanded.

Although some firms find lowering the job requirements and hiring

less-skilled workers a better choice than raising wages, this choice

incurs increased training costs

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MODIFICATIONS TO THE DEMAND SIDE

• compensating differentials: explain the presence of

various pay rates in the market Although the notion is

appealing, it is hard to document, due to the difficulties in

measuring and controlling all the factors that go into a

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MODIFICATIONS TO THE DEMAND SIDE

MODIFICATIONS TO THE SUPPLY SIDE

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PRODUCT MARKET FACTORS AND

ABILITY TO PAY

• The supply and demand for labor are major

determinants of an employer’s pay level

• However, any organization must, over time, generate

enough revenue to cover expenses, including

compensation

• It follows that an employer’s pay level is constrained

by its ability to compete in the product/service

market

• So product market conditions to a large extent

determine what the organization can afford to pay

ABILITY TO PAY

• Product Demand

• Although labor market conditions (and legal requirements)

put a floor on the pay level required to attract sufficient

employees, the product market puts a lid on the maximum

pay level that an employer can set.

• If the employer pays above the maximum, it must either

pass on to consumers the higher pay level through price

increases or hold prices fixed and allocate a greater share of

total revenues to cover labor costs.

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ABILITY TO PAY

• Degree of Competition

Employers in highly competitive markets are less able

to raise prices without loss of revenues

• The productivity of labor, the technology employed,

the level of production relative to plant capacity

available—all affect compensation decisions

• These factors vary more across than within industries

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RELEVANT MARKETS

• Defining the Relevant Market

• The data from product market competitors (as opposed

to labor market competitors) are likely to receive greater

weight when:

1 Employee skills are specific to the product market

2 Labor costs are a large share of total costs.

3 Product demand is responsive to price changes

4 The supply of labor is not responsive to changes in

pay (recall the earlier low-wage, low-skill example).

COMPETITIVE PAY POLICY ALTERNATIVES

• Pay level is the average of the array of rates inside

an organization

• There are three conventional pay-level policies: to

lead, to meet, or to follow competition

• Newer policies emphasize flexibility: among policies

for different employee groups, among pay forms

for individual employees, and among elements of

the employee relationship that the company wishes

to emphasize in its external competitiveness policy

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What Difference Does the

Pay-Level Policy Make?

• Probable Relationships Between External Pay Policies and Objectives

• Pay with Competition (Match)

• Lead Pay-Level Policy

• Lag Pay-Level Policy

• Different Policies for Different Employee Groups

• Not by Pay Level Alone: Pay-Mix Strategies

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• Pay with Competition (Match)

• A pay-with-competition policy tries to ensure that an organization’s wage

costs are approximately equal to those of its product competitors and that

its ability to attract applicants will be approximately equal to its labor

market competitors.

• Lead Pay-Level Policy

• A lead pay-level policy maximizes the ability to attract and retain quality

employees and minimizes employee dissatisfaction with pay

• A lead policy can also have negative effects: It may force the employer to

increase wages of current employees too, to avoid internal misalignment;

a lead policy may mask negative job attributes that contribute to high

turnover later on (e.g., boring assignments or hostile colleagues)

• Lag Pay-Level Policy

• A policy of paying below-market rates may hinder a

firm’s ability to attract potential employees

• But if a lag pay-level policy is coupled with the promise

of higher future returns (e.g., stock ownership in a

high-tech start-up firm) may increase employee commitment

and foster teamwork, which may increase productivity.

• Different Policies for Different Employee Groups

• Not by Pay Level Alone: Pay-Mix Strategies

• Some obvious alternatives include performance driven,

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Pay-Mix Policy Alternatives

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Pay-Mix Policy Alternatives

CONSEQUENCES OF PAY-LEVEL AND -MIX

DECISIONS

• It affects

• (1) operating expenses and

• (2) employee attitudes and work behaviors.

• Efficiency: A variety of theories make assumptions about the effects of

relative pay levels on an organization’s efficiency

• Fairness: Satisfaction with pay is directly related to the pay level

• Compliance: It’s not enough to say that an employer must pay at or

above the legal minimum wage Provisions of prevailing wage laws and

equal rights legislation must also be met.

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CONSEQUENCES OF PAY-LEVEL

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thư viện kiến thức tổng hợp về mầm non -

mẫu giáo này để chăm sóc và nuôi dạy con của mình ngày một tốt hơn

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sáng kiến kinh nghiệm

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Báo cáo giải pháp công tác quản lý Mầm non

tài liệu mầm non mẫu giáo

Kỹ năng sống cho trẻ mầm non

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Tiêu đề	Defining Competitiveness
Người hướng dẫn	Associate Prof. Dr. Pham Thi Bich Ngoc
Trường học	National Economics University
Chuyên ngành	Compensation Management
Thể loại	lecture
Năm xuất bản	2021
Thành phố	Hanoi

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Số trang	26
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