Determining The Pay Level

Question 1

How is external competitiveness expressed in practice? (2)

Answer 1

(1) setting a pay level that is above, below or equal to that of competitors
(2) determining mix of pay forms relative to those of competitors

Question 2

What is external competitiveness?

Answer 2

It refers to pay relationships among organisations- an organisation’s pay relative to its competitors.

Question 3

What is pay level?

Answer 3

It refers to the average of the array of rates paid by an employer.

Question 4

What is the array of rates?

Answer 4

(base+bonus+benefits+value of stocks)/no. of employees

Question 5

What are pay forms?

Answer 5

The various types of payments, or pay mix, that make up total compensation.

Question 6

Both pay level and pay mix decisions focus on ____ (2)

Answer 6

(1) controlling costs

(2) attracting and retaining employees

Question 7

Why do pay level decisions impact labour costs? What is the formula?

Answer 7

Other things being equal, the higher the pay, the higher the labour cost. Labour cost= Pay level x No. of employees.

Question 8

What are the pay decisions? (2)

Answer 8

(1) why would a company pay more than another?

(2) what would justify a pay level that is above whatever the minimum amount is required to attract and retain?

Question 9

What are the reasons to the pay decisions? (5)

Answer 9

(1) employees are more productive
(2) employees are more innovative
(3) employees are better trained
(4) employees are less likely to quit- saves recruitment and training costs
(5) company may pay less to differentiate non-financial returns (e.g. more challenging projects)

Question 10

What are the pay level decisions?

Answer 10

(1) different companies set different pay levels. They may choose to pay above or below what others are paying for the same job- believe that staff are more productive or better trained
(2) a single company may set a different pay level for different job families

Question 11

How does a company compare to the market?

Answer 11

It depends on what competitors it compares to and what pay forms are included.

Question 12

As employees, you should look at ____ rather than base pay.

Answer 12

Total compensation

Question 13

What shapes external competitiveness?

Answer 13

(1) labour market forces
(2) product market forces
(3) organization factors

Question 14

What are labour market forces?

Answer 14

(1) competition in the labour market for people with various skills
(2) labour demand and supply

Question 15

What are product market forces?

Answer 15

(1) competition in the products and service markets- affects financial status of the company
(2) determine an organization’s ability to pay

Question 16

What are some examples of product market forces?

Answer 16

(1) product demand

(2) degree of competition

Question 17

What is product demand?

Answer 17

Puts a lid on the maximum pay level that an employer can set.

Question 18

What is degree of competition?

Answer 18

In highly competitive markets, employers are less able to raise prices without loss of revenues.

Question 19

What are organization factors?

Answer 19

Characteristics unique to each company and its employees.

Question 20

What are examples of organization factors?

Answer 20

(1) industry/technology
(2) company size
(3) people’s preferences
(4) organization’s strategy

Question 21

What is the industry/technology factor? (org)

Answer 21

Labour intensive v technology-intensive

Question 22

What is the company size factor? (org)

Answer 22

Large companies pay more- more power in the industry to dictate the prices, demand and revenue.

Question 23

What are people’s preferences? (org)

Answer 23

Understand what pay forms employees prefer.

Question 24

Why is it important to understand what pay form employees prefer? (org)

Answer 24

More satisfaction = more retention = lower labour costs

Question 25

What is organization strategy? (org)

Answer 25

Some adopt a low-wage, high services strategy.

Question 26

What are the other relevant market factors? Explain.

Answer 26

(1) occupation- skills, knowledge and qualifications
(2) geography- willingness to relocate, commute or become virtual employees
(3) competitors- other employees in the same product/service and labour markets

Question 27

What are the competitive pay policy alternatives?

Answer 27

(1) pay with competition (match)
(2) lead policy
(3) lag policy
(4) varying policies
(5) employer of choice
(6) shared choice

Question 28

How to pay with competition (match)?

Answer 28

Attempts to ensure an organization’s

(1) wage costs are approximately equal to those of its product competitors
(2) ability to attract potential employees will be approximately equal to its labour market competitors

Question 29

What is the disadvantage to paying with competition?

Answer 29

May not have a competitive advantage.

Question 30

Why do companies choose to pay according to market rule?

Answer 30

To avoid addressing the unions’ claim that they are not paying equally and fairly.

Question 31

What is lead policy?

Answer 31

Distinguishes a company from the competition by compensating employees more highly than most competitors.

Question 32

What is the advantage of lead policy? (2)

Answer 32

(1) maximises the ability to attract and retain quality employees
(2) minimises employee dissatisfaction with pay

Question 33

What is the disadvantage of lead policy?

Answer 33

If used only to hire new employees, may lead to dissatisfaction of current employees.

Question 34

What is the lag policy?

Answer 34

Distinguishes a company from the competition by compensating employees less than most competitors

Question 35

What is the disadvantage of lag policy?

Answer 35

May hinder a firm’s ability to attract potential employees.

Question 36

When is lag policy at an advantage?

Answer 36

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

Question 37

What are the advantages of lag policy?

Answer 37

(1) increase employee commitment
(2) foster teamwork
(3) increase productivity

Question 38

Employers have ____ pay policies.

Answer 38

More than one.

Question 39

Pay policies may vary for _____. (2)

Answer 39

(1) different occupational families

(2) different forms of pay

Question 40

What is an employer of choice?

Answer 40

Companies compete based on their overall reputation as a place to work, beyond pay level and mix.

Question 41

What is shared choice?

Answer 41

(1) begins with traditional options- lead, meet or lag

2) second part- offer employees choices in the pay mix (within limits

Question 42

What does offering the employees choices in the pay mix aim to do?

Answer 42

Give employees more say in the forms of pay received.