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CHAPTER 7: DEFINING COMPETITIVENESS (EXTERNAL COMPETITIVENESS (Pay levels…
CHAPTER 7: DEFINING COMPETITIVENESS
EXTERNAL COMPETITIVENESS
Pay levels refers to the average of the array or raters 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
Refers to the pay relationship among organizations-the organizaton's pay relative to its competitors
Objectives - control costs and increase revenues, attract and retain employees
LABOR MARKETS FACTORS
In both markets, employers are the buyers and potential employees are the sellers
If inducements offered by the employer and skills offered by the employee are mutually acceptable, a deal is struck
Two basic types of markets: Quoted prices- stores that label each item's price. Bourse- eBay allows haggling over the terms and coditions
ASSUMPTIONS
Employers always seek to maximize profits
People are homogeneous and therefore interchangeable
Pay rates reflects all costs associated with employment
Markets faced by employers are competitive
LABOR DEMAND
Analysis of labor demand indicates how many employees will be hired by an employer
In the short run, an employer cannot change any factor of production except human resources
MARGINAL PRODUCT
Marginal product of labor is the additional output associated with employment of one additional person, with other production factors held constant
COMPENSATING DIFFERENTIALS
For instance, if: necessary training is ery expensive, job security is tenuous, working conditions are disagreeable, chances of success are low
Adam Smith: "If a job has negative characteristics then employers must offer higher wages to compensate for these negative features"
MARGINAL REVENUE
Marginal revenue of labor is the additional revenue generated when the firms employs one additional person, with other production factors held constant
LABOR SUPPLY
This model assumes many people are seeeking jobs, the possess accurate info. about all job openings, no barriers to mobility exist
These assumptions greatly simplify the real world
EFFICIENCY WAGE
High wages may increase efficiency and actually lower labor costs if they: Attract higher quality applicants, lower turnover, increase worker effort, reduce the need to supervise employees
SIGNALING
Employers deliberately design pay levels and mix as part of a strategy that signals to both prospective and current employees kinds of behaviors sought
PRODUCT MARKETS FACTORS AND ABILITY TO PAY
Product demand
Degree of competiton
A different view: What managers say
ORGANIZATIONAL FACTORS
Industry and technology
Employer size
People's preferences
Organizational strategy
RELEVANT MARKETS
3 Factors determine relevant labor market: Occupation, Geography, Competitors
Employers choose thei relevant markets based on competitors and jobs
Offshoring and Outsourcing
COMPETITIVE PAY POLICY
PAY WITH COMPETITION (MATCH)
LEAD PAY-LEVEL POLICY
LAG PAY-LEVEL POLICY
EMPLOYER OF CHOICE/SHARED CHOICE
CONSEQUENCES OF PAY LEVELS