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CMS 2 > A6 - Attracting and Retaining Talent > Flashcards

A6 - Attracting and Retaining Talent Flashcards

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1
Q

form of pay policy where the EE is offered a selection of how they are compensated

A

shared choice

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2
Q

competitive pay policy that pays below mkt rates and may hinder a firm’s ability to attract potential EEs

A

lag policy

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3
Q

a job seekers’ lowest level of acceptable pay

A

reservation wage

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4
Q

theory that ERs use to deliberately design pay levels and mix as part of strat. to let prospective and current EEs know what kinds of behaviors are sought

A

signaling theory

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5
Q

additional output associated w/ the employment of one additional person, w/ other production factors held constant

A

marginal product of labor

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6
Q

type of mkt that uses negotiation over terms and conditions until an agreement is reached

A

bourse mkt

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7
Q
  • refers to the pay relationships among orgs - the org’s pay relative to its competitors
  • comparisons w/ other ERs that hire ppl w/ the same skills
A

external competitiveness

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8
Q

external competitiveness

A
  • major strat. decision is whether to mirror what competitors are paying or to design a pay pkg that may differ from competitors but better fits the bus. strat.
  • (2) ways to do this:
    1. setting a pay level that is above, below, or equal to that of competitors
    2. determining the mix of pay forms relative to those of competitors
  • Pay level and Pay mix both focus on:
    1. control costs and increase revs.
    2. attract and retain EEs
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9
Q

avg of the array of rates paid by an ER

(base + bonuses + benefits + value of stock holdings) / # of EEs

A

pay level

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10
Q

the various types of pmts, or pay mix, that make up total comp.

A

pay forms

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11
Q

Control Costs and Increase Revs

A
  • pay level decisions have signif. impact on expenses
    • higher the pay level = higher the labor costs
    • labor costs = (pay level) x # of EEs
  • higher the pay level relative to what competitors pay = greater the relative costs to provide similar products/services
  • paying EEs above mkt can be an effective or ineffective strat
    • all depends on what the org. gets in return
    • is the quality and perf. competitive?
  • may not be about how much you pay
    • rather - it may be about the ability to pay competitively and get a great deal in return from your EEs
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12
Q

Attract and Retain EEs

A
  • different ERs set different pay levels
    • deliberately choose to pay above or below what others are paying for the same work
  • a single company may even set up different pay levels for different job families
    • different ways to compare - base wage vs. total comp. pkg
  • there is no single ‘going mix’ of pay forms or single “going rate” in the mktplace
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13
Q

What Shapes External Competitiveness?

A

**act together to effect pay-level and pay-mix decisions

  1. Labor Mkt Factors
    • Nature of Demand
    • Nature of Supply
  2. Product Mkt Factors (affects the fin. condition of the org.)
    • Degree of Competition
    • Level of Product Demand
  3. Org. Factors (unique to org. and its EEs)
    • Industry, Strat, Size
    • Indiv. Mgr
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14
Q

What Shapes External Competitiveness?

Labor Mkt Factors

A
  • (2) basic types of mkts:
    • quoted price (exp. - Amazon)
    • bourse mkt (exp. - eBay)
      • negotiating over the terms and conditions until an agreement is reached
  • in the labor mkt
    • graduating students - usually in a quoted-labor mkt w/ only minor haggling (bourse) may occur
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15
Q

Theories of Labor Mkts

(4) assumptions

A
  1. ERs always seek to max. profits
  2. ppl are homogeneous and therefore interchg’ble (no matter where you graduate)
  3. pay rates reflect all costs associated w/ employment (wage base, bonuses, holidays, benefits, training…)
  4. mkts faced by ERs are competitive, so there is no adv. for a single ER to pay above or below the mkt rate

**over simplified - but provide framerwork for understanding labor mkts

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16
Q

How Labor Mkt Works

A
  • (4) theories of labor mkts
  • understanding how mkts work requires analysis of the demand and supply of labor
    • Demand - focuses on the actions of the ERs - how many new hires they seek and what they are willing and able to pay new EEs
    • Supply - looks at potential EEs - qualifications and the pay they are willing to accept in exchg. for their services
  • Market Rate: where supply of labor = labor demand
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17
Q

Labor Demand

A
  • the labor demand curve is downward sloping
    • the relationship b/w employment levels and wage rates
  • the employment level orgs. require an increase in wage rates will reduce the demand for labor, other factors constant
  • in the short-term: ER cannot chg. any other factor of prod.
    • level of prod. can chg only if it chgs the level of HRs (affecting their demand for Labor)
    • at this point, a single ER’s demand for labor coincides w/ the marginal prod. of labor
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18
Q

the addit’l output assoc’d w/ the employment of one addit’l person, w/ other prod. factors held constant

A

marginal prod. of labor

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19
Q

exp of marginal product

A
  • assume 2 bus. grads form a consulting firm that provides services to 10 clients
  • hires a 3rd person who brings in 4 new clients
    • marginal prod. of 3rd person = 4 clients
  • hires a 4th person who only brings in 2 clients
  • diminishing marginal productivity results from the fact that each additional EE has a progressively smaller share of the other factors of prod. w/ which to work w/
    • in the short term - factors such as office space, # of computers, phone lines, hrs of clerical support are fixed
    • until these factors chg to accomodate more EEs, each new hire produces less than the previous
  • the amt each new hire produces = marginal product.
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20
Q
  • additional revenue generated when the firm employs one additional person, w/ other prod. factors held constant
  • money generated by the sale of the marginal prod, the addtional output from the employment of one addtional person
A

Marginal Revenue of Labor

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21
Q

Marginal Revenue

A
  • same story of the inv. firm
    • if each new client generates $25,000 in revenue - 3rd EE’s 4 clients will generate $100,000
    • 4th EE’s 2 clients will generate only $40,000 = to the wage of the 4th EE (firm only breaks even here)
    • shows that the firm would start to lose money if they hire a 5th EE
  • therefore - ER will continue to hire until the marg. rev. generated by the last hire is = the costs associated w/ employing that person (Marginal Revenue Product)
  • Level of Demand that max’s profits = (level at which the marg. rev. of the last hire is = wage rate for that hire)
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22
Q

Mgr using Marg. Rev. Prod model to determine how many ppl to hire must do only (2) things:

A
  1. determine the pay level set by mkt forces
  2. determine the marg. rev. generated by each new hire

**this will tell the mgr how many ppl to hire

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23
Q

Disadv. of Marginal Product of Labor Model

A
  • provides valuable analytical framwork, but OVERSIMPLIFIES the real world
  • almost impossible to quantify goods/servs. prodcued by its indiv. EEs since most production is through joint efforts of EEs w/ a variety of skills
    • not directly measurable
24
Q

Labor Supply

A
  • this model assumes that many ppl are seeking jobs, that they possess accurate info about all job openings, and that no barriers to mobility exist (discrim., licensing provisions, or union requirements)
    • greatly simplify the real world
  • as the assumptions chg = so does the supply
    • upward sloping supply curve assumes that as pay increases, more ppl are willing to take a job
    • if UnN 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 ER may face a higher pay level, but no increase in supply
  • some firms find lowering the job requirements and hiring less-skilled workers a better choice than raising wages, this choice incurs increased training costs
25
Q

Modifications to the Demand Side

A
  • economic theories must frequently be revised to acct for reality
  • if you chg the focus from all the ERs in an economy to a particular ER, models must be modified to help us understand what actually occurs
  • (3) modifications to the model that address this:
    • compensating differentials
    • efficiency wage
    • signaling
26
Q

Modifications to the Demand Side

Compensating Differentials

A
  • economic theory that attributes the variety of pay rates in the ext. labor mkt to differences in attractive as well as negative chara. in jobs
  • pay differences must overcome negative chara. to attract EEs
  • appealing, but hard to document, due to the difficulties in mearsuring and controlling all the factors that go into a net-adv. calc.
27
Q

Modifications to the Demand Side

Efficiency Wage

A
  • theory that explains why firms are rational in offering higher-than-necessary wages
  • firms believe that higher wages may increase efficiency and actually lower labor costs if they:
    • attract higher-quality applicants
    • lower turnover
    • increase worker effort
    • reduce shirking (screwing around)
    • reduce the need to supervise EEs
  • efficiency increases by hiring better EEs or motivating present EEs to work smarter or harder
  • Pay Level determines Effort (difficult to document)
  • the Utility Theory can help compare the cost/benefits of different pay level policies
28
Q
  • compare the costs/benefits of different pay level policies
  • analysis of utility, the $ value created by increasing revs. and/or decreasing costs by changing one or more human resource practices
  • most typically been used to analyze the payoff to making more valid EE hiring/selection decisions
A

Utility Theory

29
Q
  • the ability of a firm to meet EE wage demands while remaining profitable
    • a frequent issue in contract negotiations w/ unions
  • firm’s ability to pay is constrained by its ability to compete in its prod. mkt
A

ability to pay

30
Q

the difference b/w what a factor of prod. is paid and how much it would need to be paid to remain in its current use

A

(economic) rent

31
Q

Modifications to the Demand Side

Signaling

A
  • useful in understanding pay mix
  • holds that ERs deliberately design pay levels and mix as a part of a strat. that signals to both prospective and current EEs the kinds of behaviors that are sought
    • an ER that combines lower base pay w/ high bonuses may be signaling that it wants EEs who are risk takers
  • pay policies communicates expectations
  • studies of college students have shown that it is about both pay level and mix affecting their job decisions
32
Q

Modifications to the Supply Side

Reservation Wage

A
  • job seekers have a reservation wage level below which they will not accept a job offer
    • if pay level doesn’t meet their min. standard - no other job attributes can make up for this inadequacy
  • some ppl will take the first job offer they get where the pay meets their reservation wage
  • reservation wage may be above or below mkt wage rate.
  • theory seeks to explain differences in workers’ responses to offers
  • these levels likely exist for pay forms too, particularly in health insurance
    • not accepting a job offer if they don’t offer health insurance.
33
Q

Modifications to the Supply Side

Human Capital

A
  • most influential economic theory for explaining pay-level differences
  • based on the premise that higher earnings flow to those who improve their potential prod. by investing in themselves (additional education, training, and experience)
  • assumes that ppl are in fact paid at the value of their marg. prod.
    • improving productive abilities = increase marg. prod.
  • value of indiv’s skills and abilities is a function of the time, expense, and effort to acquire them
  • jobs that require long and expensive training should receive higher pay than jobs that require less inv.
  • as pay level increases = # of ppl willing to make that inv. increases = creating an upward-sloping supply
34
Q

Product Mkt Factors

A
  • product mkt conditions to a large extent determine what the org. can afford to pay
  • (2) Key factors: product demand and degree of competition
    • affect the ability of the org. to chg what it charges for its prods/servs.
    • if prices cannot be chg’d w/o decreasing sales - then the ability of the ER to set a higher pay level is constrained
35
Q

Product Demand

A
  • a prod. mkt that sets the upper limit w/in which an ER’s pay level is set
    • even though labor mkt conditions (and legal requirements) put a floor on the pay level required to attract sufficient EEs - the prod. mkt puts a lid on the max. pay level that an ER can set
  • if ER pays above the max - 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 revs. to cover labor costs
36
Q

Degree of Competition

A
  • ERs in highly competitive mkts - usually less likely to be able to raise prices w/o loss of revs.
  • ERs in specialty (less competitive) mkts - able to set whatever price they choose
    • too high of prices invites gov’t involvement
37
Q

Other Factors that affect pay level

A
  • productivity of labor
  • tech. employed
  • level of prod. relative to plant capacity available

**varies across industry more than w/in industries

38
Q

segmented labor supply

A
  • used in order to reduce labor costs
  • popular in the nursing/medical industry
  • using sources of labor that come from multiple mkts.
  • some EEs may come from different global locations, may receive different pay forms, and may have varied employment relationships
  • “ppl flow to the work” - just like nurses; companies cannot send this work to the ppl (ppl have to come to the work)
  • “work flows to the ppl” - can be onsite, offsite, offshore
39
Q

Org. factors that influence pay level and mix decisions

A
  • industry and tech
  • ER size
  • Ppl’s preferences
  • Org. Strat.
40
Q

Org. factors that influence pay level and mix decisions

Industry and Tech.

A
  • labor-intensive industries pay less than technology-intensive industries
  • differences in tech. across industries affecting comp, the intro of new tech w/in an industry influences pay levels
  • qualifications and experience tailored to particular tech. is important in the analysis of labor mkts.
41
Q

Org. factors that influence pay level and mix decisions

ER size

A
  • large orgs. tend to pay more than small ones
  • relationship b/w org. size, ability to pay, and pay level is consistent w/ economic theory that says that talented indivs. have a higher marginal value in a larger org. b/c they can influence more ppl and decisions, thereby leading to more profits
42
Q

Org. factors that influence pay level and mix decisions

People’s Preferences

A
  • have a better understanding employee preferences in how they get paid (health insurance, bonuses, pensions…)
  • substantial difficulties in reliably measuring preferences
  • researchers have found that ppl put more importance on pay than they are willing to admit
43
Q

Org. factors that influence pay level and mix decisions

Org. Strat.

A
  • variety of pay-level and mix strats exist
    • low-wage, no-services strat: compete by producing goods/services w/ the lowest total compensation possible
    • low-wage, high-strat
  • a variety of pay-level strats can exist w/in some orgs.
  • pay levels that lead competition are used in jobs that most directly impact the org’s success
  • in jobs w/ less impact - pay levels reflect a ‘meet competition’ policy
  • “high-base, high-services” approach
    • orgs making greater use of high-perf. work practices and computer-based tech. and having higher-skilled workers also pay higher wages
    • observable benefits of higher wages include: higher pay satisfaction, improved attraction and retention of EEs, and higher quality, effort and/or perf.
    • higher wages must bring something in return
44
Q

Relevant Markets

A
  • those ERs w/ which an org. competes for skills and products/services
  • (3) factors commonly used to determine the relevant mkts:
    1. _occupation _(skills/knowledge required)
    2. geography (willingness to relocate and/or commute)
    3. competitors (other ERs in the same prod./service and labor mkts)
  • big part of figuring out how and how much to pay
45
Q

defining the relevant mkt

A
  • if defined incorrectly, the estimates of competitors’ pay rates will be incorrect and the pay level and mix inappropriately established
  • studies conclude that mgrs look at both:
    • competitors - their prods, location, and size
    • the jobs - the skills and knowledge required and their importance to the org’s success
  • depending on its location and size, a company may be deemed a relevant comparison even if it is not a product mkt competitor
46
Q

data from prod. mkt competitors are likely to receive greater weight when:

A
  • EE skills are specific to the prod. mkt
  • labor costs are a large share of total costs
  • prod. demand is responsive to price chgs
  • the supply of labor is not responsive to chgs in pay
47
Q

risks when deciding where job will be - onshore or offshore - in order to save on costs

A
  • countries w/ lower avg labor costs also tend to have lower avg productivity
  • if companies devote resources to systems that monitor worker effort or output, can be more difficult and more costly when geographic or cultural distance is great
  • custs’ reactions must be considered (for exp-use of foreign telemktrs and support personnel)
  • if labor costs are the driving force behind placing jobs, one must ask for how long the labor cost adv. at a signif. lower wage even will hold and whether sufficiently qualified EEs will continue to be available as other companies also tap into this pool of labor
48
Q

why have a pay policy?

how do mgrs choose a competitive pay policy?

A
  • competitiveness of pay will affect the org’s ability to achieve its compensation objs. and this in turn will affect its perf.
  • prob w/ pay-level research: focuses on base pay and ignores bonuses, incentives, options, employment security, benefits, or other forms of pay
49
Q

Pay with Competition (Match)

A
  • policy that tries to ensure that a firm’s labor costs are approx. equal to those of its competitors
  • seeks to avoid placing an ER at a disadv. in pricing prod. or in maintaining a qualified work force
  • most common choice out of chosing to match, lead, or lag w/ competition
  • if not, could limit ability to recruit to EEs or retain current EEs
50
Q

Lead Pay-Level Policy

A
  • a wage struct. that is set to lead the mkt throughout the plan year
  • its aim is to max. firm’s ability to attract and retain quality EEs and to minimze EE dissatisfaction w/ pay
  • may also offset less attractive features of the work
  • research has linked high wages to ease of attraction, reduced vacancy rates and training time, and better-quality EEs
  • the use of variable pay is related to an org’s improved fin. perf. but that pay level is not
  • negative effects of lead policies:
    • may force the ER to increase wages of current EEs too to avoid internal issues
    • may mask negative job attributes that contrib. to high turnover later on
51
Q

Lag Pay-Level Policy

A
  • a wage struct. that is set to match mkt rates at the beginning of the plan year only
  • the rest of the plan year, internal rates will lag behind mkt rates
  • its obj. is to offset labor costs, but it may hinder a firm’s ability to attract and retain quality EEs
  • paying below mkt rates
  • usually coupled w/ the promise of higher future returns
    • this combo may increase EE commitment and foster teamwork - may increase productivity
  • unmet expectations probably have negative effects
  • could have a lag in pay level, but have it coupled w/ other returns from work - hot assignments, desirable location, outstanding colleagues, work/life balance….
52
Q

diff. policies for diff. EE groups

A
  • ERs go beyond a single choice among the (3) policy options
  • may vary policy for diff. occupational families
  • may vary the policy for diff. forms of pay
  • also adopt different policies for different bus. units that face very diff. competitive conditions
53
Q

Pay-mix Strats. (not by pay alone)

A
  • alternatives include:
    • perf. driven - mainly incentives/stk ownership
    • mkt match - mimics the pay mix competitors are paying
    • work/life bal.
    • security
54
Q

Employer of Choice

A
  • the view that a firm’s external wage competitiveness is just one facet of its overall HR policy and that competitivenenss is more properly judged on overall policies
  • challenging work, great colleagues, or an org’s prestige must be factored into an overall consideration of attractiveness
  • competing solely based on the company’s reputation as a place to work
  • the brand or image the company projects as an ER
55
Q

Shared Choice

A
  • an external competitiveness policy that offers EEs substantial choice among their pay forms
  • begins w/ traditional alternatives of lead, meet or lag
  • then adds a 2nd part - offer EEs choice in the pay mix
  • “EE-as-cust.” - offering choices to EE
  • Disadv:
    • EE will make wrong choice based on just fin. well-being instead of being proactive (exp - health ins.)
    • offering too many choices will cause confusion and bad decision making
56
Q

(2) major consequences of External Competitiveness

A
  1. operating expenses
  2. EE attitudes and work behaviors
57
Q

Competitiveness of total comp.

A
  • contain operating expenses (labor costs)
  • incr. pool of qualified apps
  • incr. quality and experience
  • reduce voluntary turnover
  • incr. probability of union-free status
  • reduce pay-related work stoppages

CMS 2 (13 decks)

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