Assignment 6

Question 1

Two factors on which external competitiveness is expressed:

Answer 1

1. Setting a pay level that is above, below, or equal to the competitors
2. Determining the mix of pay forms relative to those of competitors

Question 2

External Competitivness Refers to

Answer 2

the pay relationships among organizations or the organization’s pay relative to its competitors.

Question 3

Pay level refers to

Answer 3

the average of the array of rates paid by an employer

Question 4

Pay forms refer to

Answer 4

the mix of the various types of payments that make up total compensation.

Question 5

Other things being equal, the higher the pay level

Answer 5

the higher the labor cost

Question 6

Labor costs are equal to

Answer 6

the pay level times the number of employees

Question 7

The higher the pay level relative to what competitors pay

Answer 7

the greater the relative costs to provide similar products or services.

Question 8

Many companies use different pay levels

Answer 8

for different job families

Question 9

How a company looks in comparison to the market depends on

Answer 9

the companies it compares to and the pay forms included in the comparison.

Question 10

What influences external competitiveness?

Answer 10

1) Competition in the labor market for people with various skills
2) Competition in the product and service markets, which affects the financial condition of the organization
3. Characteristics unique to each organization and its employeees, such as its business strategy, technology, and the productivity and experience of its workforce.

Question 11

2 basic types of markets:

Answer 11

1) Quoted Price
2) Bourse- negiotiating over terms and conditions until an agreement is reached.
In both markets the employers are the buyers and the employees are the sellers.

Question 12

4 Basic assumptions that theories of labor markets usually begin with:

Answer 12

1) Employers always seek to maximize profits
2) People are homogeneous and therefore interchangeable
3) The pay rates reflect all costs 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 market rate

Question 13

Market Driven

Answer 13

Organizations pay competitvely with the market or even are the market leaders.

Question 14

The demand side of the market focuses on:

Answer 14

the actions of the employer

Question 15

The supply side of the market looks at:

Answer 15

potential employees

Question 16

Marginal Product of Labor

Answer 16

The additional output associated with the employment of one additional person, with other production factors held constant.

Question 17

Marginal revenue of labor

Answer 17

additional revenue generated when the firm employs one additional person, with other productions factors held constant

Question 18

What must a manager do when he or she uses the marginal revenue product model to determine how many people to hire?

Answer 18

1) Determine the pay level set by market forces

2) Determine the marginal revenue generated by each new hire

Question 19

Compensating differentials as a modification to the demand side:

Answer 19

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 “net advanatage”. Work with negative characteristics requires higher pay to attract workers

Question 20

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

Answer 20

1) Attract higher quality applicants
2) Lower turnover
3) Reduce Shirking
4) Reduce the need to supervise

Question 21

Efficiency increases through:

Answer 21

hiring better employees or motivating present employees to work smarter or harder. Pay level determines effort.

Question 22

Signaling theory:

Answer 22

Employers deliberatley design pay levels and mix as a part of a strategy that signals to both prospective and current employees what kinds of behaviors are sought.

Question 23

In signaling theory, a policy of paying below market for base pay yet offering generous bonuses or training opportunity sends a signal that

Answer 23

it wants employees that are risk takers

Question 24

Characteristics of the applicants and the organization decisions about the pay level and mix act as signals that

Answer 24

help communicate

Question 25

How does a reservation wage act as a modification to the supply side?

Answer 25

Job seekers will not accept jobs whose pay is below a certain wage, no matter how attractive other aspects of the job may be.

Question 26

Human capital

Answer 26

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

Question 27

The value of an individual’s skills and abilities

Answer 27

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.

Question 28

An employer’s pay level is constrained by:

Answer 28

its ability to compete in the product-and-service market. Any organization must, over time, generate enough revenue to cover expenses, including compensation.

Question 29

Product demand

Answer 29

Product demand is a product market that sets the upper limit within which an employer’s pay level is set. If employers want to pay employees more than the maximum amount as dictated by their cost structure, they must be able to recover the costs either through passing higher prices to customers or holding prices steady and taking the cost of the higher wages from total revenues

Question 30

Degree of competition

Answer 30

Comes into play when employers in highly competitive markets will be less able to raise prices without loss of revenues. With more competition, the consumer has a substitute effect in the event that one company charges more than another. Due to high competition, prices are usually held around those of the competitors and therefore, wages are held steady as well. If there are few to no competitors, higher prices can be passed to the consumer and and thus higher wages can be paid.

Question 31

Individuals have a higher marginal value in a larger firm because

Answer 31

they can influence more people and decisions, which leads to more profits.

Question 32

Factors to consider in defining markets

Answer 32

occupations, the geographic location of the organization and its competitors in the same product-and-service market.

Question 33

The skills, knowledge and qualifications required in an occupation are important because

Answer 33

they tend to limit mobility among other occupations.

Question 34

Qualficiations include not only training and educaiton but

Answer 34

licensing and certification requirements

Question 35

If relevant markets are incorrectly defined

Answer 35

the estimates of competitor’s pay rates will be incorrect and the pay level mix inapproprately established

Question 36

3 Competitive pay policies

Answer 36

1) Lead
2) Lag
3) Match– most common

Question 37

Managers say that the failure to match competitors rates would

Answer 37

cause dissatifaction among present employees and limit the organization’s ability to recruit.

Question 38

Many nonunionized companies tend to match or even lead competition to

Answer 38

discourage unions

Question 39

A lead pay policy

Answer 39

maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay. It can also offset less attractive features of work.

Question 40

Negative aspects of a lead policy

Answer 40

1) can force employers to increase wages of current employees to avoid internal misalingment
2) May mask negative job attributes that contribute to high turnover later on.

Question 41

Lag policy

Answer 41

pays below market rates and may hinder a firm’s ability to attract potential employees.

Question 42

If pay level is lagged in return for a promise of higher future returns

Answer 42

such a promise may increse employee commitment and foster teamwork, which may increase productivity

Question 43

Characteristics of an “employer of choice”

Answer 43

strong emphasis on performance, extensive training opportunities, challenging work assignments, and the like.

Question 44

Calculation for pay level:

Answer 44

Pay/# of employees

Question 45

Transacational work

Answer 45

routine tasks

Question 46

Tactic work

Answer 46

complex tasks