6 - Attracting and Retaining Talent

Question 1

Two factors upon which external competitiveness is expressed in practice are:

• (1) setting a _______ that is above, below or equal to the competitors and
• (2) determining the mix of ______ relative to those of competitors.

Answer 1

pay level

pay forms

Question 2

• __________refers to the pay relationships among organizations or the organization’s pay relative to its competitors.
• ______ refers to the average of the array of rates paid by an employer.
• _______ refer to the mix of the various types of payments that make up total compensation

Answer 2

external competitiveness

pay level

pay forms

Question 3

Pay-level decisions have a significant impact on ______. Other things being equal, the higher the pay level, the higher the labor cost. Labor costs are equal to pay level times the number of employees. Furthermore, the higher the pay level relative to what competitors pay, the greater the _______ to provide similar products or services. So one might think that all organizations would pay the same job the same rate. However, they do not. The same work is paid differently.

Answer 3

expenses

relative costs

Question 4

External competitiveness is influenced by the following three factors:

• (1) Competition in the labor market for people with ________
• (2) Competition in the ____ and ____ markets, which affects the financial condition of the organization
• (3) _________ unique to each organization and its employees, such as its business strategy, technology, and the productivity and experience of its workforce.

Answer 4

1. various skills
2. product and service
3. Characteristics

Question 5

economists describe two basic types of markets. these two basic types of markets are the ________ and the ________ (the negotiating over the terms and conditions until an agreement is reached)

Answer 5

quoted price

bourse

Question 6

Theories of labor markets usually begin with the following four basic assumptions:

(1) Employers always seek to maximize _____.
(2) People are ________ and therefore interchangeable.
(3) The pay rates reflect ______ associated with employment.
(4) The markets faced by employers are competitive, so there is no advantage for a single employer to pay above or below the ______.

Answer 6

profits

homogeneous

all costs

market rate

Question 7

organizations often claim to be _______. they pay competitively with the market or even are the market leaders. Understanding how markets work requires analysis of the demand and supply of labor. the demand side of the market focuses on the ______ of the employer. the supply side looks at ______ employees.

Answer 7

market driven

actions

potential

Question 8

the marginal _______ of labor is the additional output associated with the employment of one additional person, with other production factors held constant.

the marginal ______ of labor is the additional revenue generated when the firm employs one additional person, with other production factors held constant.

Answer 8

product

revenue

Question 9

(a) A manager using the marginal revenue product model must do only two things. These two things are: (1) determine the pay level set by ______ and (2) determine the marginal revenue generated by ______.
(b) The model provides a valuable analytical framework, but it oversimplifies the ________. In most organizations, it is almost impossible to quantify the goods or services produced by its individual employees since most production is through joint efforts of employees with a variety of skills. Neither the marginal product nor the marginal revenue is directly _______.

Answer 9

• market forces
• each new hire
• real world
• measurable

Question 10

More than 200 years ago, Adam Smith argued that individuals consider the “whole of the advantages and disadvantages of different employments” and make decisions based on the alternative with the greatest “________.” This advantage can be found in factors such as greater job security or better working conditions. Work with negative characteristics requires higher pay to attract workers. Such compensating differentials explain the presence of various _______ in the market.

Answer 10

“net advantage”

pay rates

Question 11

The efficiency wage theory says that sometimes high wages may increase efficiency and actually lower labor costs if they:

• (a) Attract ______ applicants
• (b) Lower ______
• (c) Increase worker _____
• (d) Reduce ______
• (e) Reduce the need to ______ employees.

Basically, efficiency increases through hiring better employees or motivating present employees to work smarter or harder. The underlying assumption is that pay level determines effort.

Answer 11

• higher quality
• turnover
• effort
• “shirking”
• supervise

Question 12

______ theory says that employers deliberately design pay levels and mix as part of a strategy that signals to both prospective and current employees what kinds of behaviors are sought. A policy of paying below the market for base pay yet offering generous bonuses or training opportunities sends a different signal, and presumably attracts different people, than a policy of matching market wage with no performance-based pay. An employer who combines lower base pay with high bonuses may be signaling that it wants employees who are risk takers.

Signaling works on the supply side of the model too, as suppliers of labor signal to potential employers. People who are better trained, have higher grades in relevant courses and/or have related work experience signal to prospective employers that they are likely to be better performers. So both characteristics of the applicants and organization decisions about the pay level and mix act as signals that help communicate

Answer 12

Signaling

Question 13

It is recognized that job seekers will not accept jobs whose pay is below a certain wage, no matter how attractive other aspects of the job may be. What this means is that job seekers have a _______ level below which they will not accept a job offer. The pay level will affect one’s ability to recruit. If pay level does not meet the minimum standard of job seekers, no other job attributes can compensate for this flaw.

Answer 13

reservation wage

Question 14

The theory of human capital is based on the premise that higher wages flow to those who improve their potential _______ by investing in themselves through additional education, training and experience. The theory assumes that people are in fact paid at the value of their marginal product.

The value of an individual’s skills and abilities is a function of the time, expense and resources expended to acquire them. Higher pay is required to induce people to train for more difficult jobs. Consequently, jobs that require long and expensive training receive higher pay levels than jobs that require less investment.

Answer 14

productivity

Question 15

the _____ and ______ 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 _______ conditions to a large extent determine what the organization can afford to pay.

Answer 15

supply

demand

product market

Question 16

_________ is a product market that sets the upper limit within which an employer’s pay level is set. The degree of ________ comes into play when employers in a highly competitive market will be less able to raise prices without loss of revenues.

Answer 16

Product demand

competition

Question 17

What organizational factors influence pay level and mix decisions?

• First, the _______ in which an organization competes in uences the technologies used. _______- intensive industries such as education and health care tend to pay lower than _______- intensive industries such as petroleum or pharmaceuticals. In addition to differences in technology across industries affecting compensation, the introduction of new technology within an industry in uences pay levels.
• Another organizational factor exerting influence is _______. There is consistent evidence that large organizations tend to pay more than small ones. This relationship between organization size, ability to pay and pay level is consistent with economic theory. It says that the talented individuals have a higher marginal value in a larger rm because they can influence more people and decisions, which leads to more pro ts.
• A third factor in uencing compensation decisions is what organizations believe are employees’ ________. What pay forms do employees really value? What forms should be changed to improve their value to employees? Better understanding these is increasingly important in determining external competitiveness. Markets involve both employees’ and employers’ choices. However, there are substantial dif culties in reliably measuring preferences. And it is important to keep in mind that people place more importance on pay than they are willing to admit.

Answer 17

• industry
  
  • Labor
  • technology
• employer size
• preferences

Question 18

Factors to be considered in defining relevant markets include _________, the geographic location of the organization and its competitors in the same product/service market.

The skills, knowledge and qualifications required in an occupation are important because they tend to limit mobility among other occupations. Quali cations include not only training and education, but also licensing and certi cation requirements.

(Qualiflcations interact with geography to further define the scope of the relevant labor markets. Top management is recruited ______. Typically, most degreed professionals are recruited nationally or regionally. Technicians, craftspeople and operatives are usually recruited ______. Office workers are recruited ______. However, the geographic scope of a market is not fixed. It changes in response to workers’ willingness to relocate or commute certain distances. This propensity to be mobile in turn may be affected by personal and economic circumstances as well as the employers’ pay level.

In addition to the occupation and geography, the industry in which the employer ______ also affects the relevant labor markets by relating the qualifications required to particular technologies. Product market comparisons also focus on comparative labor costs.)

Little research has been done on how employers choose their _______. But if the markets are incorrectly defined, the estimates of competitors’ pay rates will be incorrect and the pay level and mix inappropriately established.

Research has shown that competitors look at both their competitors (their products, location and size) and the jobs (the skills and knowledge required, and their importance to the organization’s success). ________ comparisons gain importance if the organization is having difficulty attracting and retaining employees.

Answer 18

• occupations
• globally
• regionally
• locally
• competes
• relevant markets
• Labor market

Question 19

The basic premise is that the competitiveness of pay will affect the organization’s ability to achieve its compensation objectives, which in turn will affect the organization’s performance. The problem with much pay-level research is that it focuses on base pay and ignores bonuses, incentives, options, employment security, bene ts or other forms of pay. Many managers seem to believe they get more bang for the buck by allocating dollars away from _______ and into variable forms that more effectively shape employee behavior.

Answer 19

base pay

Question 20

Given the choice to match, lead or lag, the most common pay policy is to _______ rates paid by competitors. Managers historically justify this policy by saying that failure to match competitors’ rates would cause dissatisfaction among present employees and limit the organization’s ability to recruit.

Many _______ companies tend to match or even lead competition to discourage unions. 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. While this policy avoids placing an employer at a disadvantage in pricing products, it may not provide an employer with a competitive advantage in its labor market.

A lead pay policy maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay. It may also offset less attractive features of work. Sometimes an entire industry can pass high pay rates onto customers if pay is a relatively low proportion of total operating expense, or if the industry is highly regulated. A lead policy can have negative effects, too. It may force the employer to increase wages of _______, too, to avoid internal misalignment and murmuring against the employer. Additionally, a lead policy may mask ________ that contribute to high turnover later on.

A lag policy is one that pays below market rates and may hinder a firm’s ability to attract potential employees. However, if pay level is lagged in return for the promise of higher _______, such a promise may increase employee commitment and foster teamwork, which may increase productivity.

Answer 20

match

nonunionized

current employees

negative job attributes

future returns

Question 21

In practice, many employers go beyond a single choice among the three policy options. They may vary the policy for different occupational families or they may vary the policy for different forms of pay.

• An _________ policy goes beyond pay level and forms to focus on all returns from employment including a rm’s overall reputation as a place to work. Some characteristics may include a strong emphasis on performance, extensive training opportunities, challenging work assignments and the like. Just as companies compete for customers by offering a choice of product features, quality and services at the right price, some employers also compete for employees by offering an appealing work environment.
• Another form of pay policy is the ________ approach. It begins with the traditional alternatives of lead, meet or lag. But it then adds a second part, which is to offer employees choices in the pay mix. Employees have more say in the forms of pay they receive. This employees-as-______ perspective is not all that revolutionary, at least in the United States. Many employers offer choices on health insurance, retirement investments and so on.

Answer 21

employer-of-choice

shared choice

customer

Question 22

Research on the effect of pay-level policies is dif cult because companies’ stated policies often do not correspond to reality. Beyond opinions, there is little evidence of the consequences of different policy alternatives. It is known that pay level affects costs. It is not known whether any effects it might have on productivity or attracting and retaining employees are suf cient to _____ costs.

Where does this leave the manager? In the absence of convincing evidence, the least-risk approach may be to set both pay level and pay mix to ______ the competition. A manager may adopt a _____ policy for skills that are critical to the organization’s success, a match policy for less critical skills and a lag policy for jobs that are easily filled in the local labor market.

Answer 22

offset

match

lead