4. pay theories Flashcards
what is the cost of business?
high employee cost
if business cost is a concern, why would an organization want to pay higher than the minimal?
the organization hangs on to the belief that higher salary will shape positive behaviour
with behaviour shaper, which will it attract?
- attract better employees
- lower attrition
- higher productivity
what dont the organizations pay as high as possible if it may bring about positive behaviour?
the keyword is may and it may not guarantee plus the affordability of the organization
what is off-shoring?
work flow to the people
what are the characteristics of off-shoring?
- many locations : go wherever the labour supply exists
- same work, different pay : but employees may not know
- different COL at each location : makes it difficult for employees to compare/easier to compare
what is in-shoring?
poeple flow to the work
what are the characteristics of in-shoring?
- one location, many people : import the supply
- same work, different pay : employees will know and compare
- same COL at host locations, different COL at source locations : more difficult
what is on-site?
- located at the company premises
- look at the market rate in the country
what is off-site?
- located away from the company premises
- look at market rate in your own country
- may have to consider piece-rate, or kpi-related pay
what is off-shore?
- located in another country
- look at the market rate in another country
what is in-shore?
- import labour to your company’s location
- look at market rates of sources countries
what is out-shore?
- give away work to a vendor
- negotiate with vendor contact value
what are the components of pay brand?
- pay policy: how much?
- pay mix: what type?
what are the objectives of externally competitive?
- control cost and increase reveunes
- attract and retain employees
what are the three policies?
- match
- lead
- lag
what is match policy?
- averae rate of pay is approx. equal to the average for the relevant labour market
- matches an organization’s wage costs to those of its product competitors
what are the advantages of match policy?
- ability to attract potential employees will be approx. equal to its labour market competitors
- avoids being disadvantaged in pricing product
what is the lead policy?
maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay
what is the advantage of lead policy?
may also offset less attractive features of work
what is the disadvantage of lead policy?
higher labour cost will be passed on to the consumer
what is lag policy?
low costs which may hinder the firm’s ability to attract potential employees
what will happen if the pay level remains at lag?
- may increase employee commitment
- foster teamwork
- may possibily incrase productivity
what is annual base salary (ABS)?
guaranteed pay excluding allowances that fluctuate/disappear
what is annual total salary (ATS)?
- total fixed and variable pay including bonus, stock options, allowances, commission, incentives
what is annual total compensation (ATC)?
- total package of salary and benefit
- monetize the benefits: leave, medical, insurance
what is the advantages and disadvantages of base pay ?
- advantage - tells how competitors are valuing the work in similar job
- disadvantage - fails to include performance incentives and other forms, so will not give true picture if competitors offer low base but high incentives
what is the advantages and disadvantages of total cash (base + bonus)?
- advantage - tells how competitors are valuing work; also tells the cash pay for performance opportunity in the job
- disadvantage - all employees may not receive incentives, so it may overstate the competitors’ pay; plus does not include long-term incentives
what is the advantages and disadvantages of total compensation?
- advantage - tells the total value competitors place on this work
- disadvantage - all employees may not receive all the form. dont set base equal to competitors’ total compensation. risks high fixed cost
what is pay mix?
how much of fixed vs how much of variable
what would be a good pay mix?
- 100% fixed is not advisable
- at junior job level - fixed should be higher than variable
- at senior job level - variable can and should become more significant
