Topic 5 - External Reward Positioning Flashcards
What is External Reward Positioning?
It refers to how an organization’s rewards compare to the rewards offered for comparable work in other organizations.
Why is matching external pay markets important for a Total Rewards System?
To attract and retain talented employees by aligning pay with what competing organizations offer in the labor market.
What is External Equity?
It refers to employee perceptions regarding the fairness of their work conditions and rewards compared to those of individuals outside the company.
On what theory is External Equity based?
It is based on Equity Theory, which suggests employees judge the fairness of their inputs (e.g., effort) relative to outputs (e.g., rewards).
How do employees evaluate external equity?
By comparing their own inputs and outputs to those of individuals working for other companies, such as colleagues, friends, or neighbors.
What are the two primary types of markets that impact organizational rewards?
Labor Markets and Product/Service Markets.
How do markets determine the price of goods and services?
Prices are determined by the independent decisions of multiple buyers and sellers, influenced by changes in supply and demand.
What happens in a labor-driven job market?
Job seekers have more negotiating power when the demand for a particular set of KSAs (knowledge, skills, and abilities) is high, and the supply is low.
In labor markets, who are the sellers, and who are the buyers?
Individuals are the sellers offering their time, knowledge, and skills, while organizations are the buyers seeking to acquire those skills in exchange for rewards.
What determines compensation levels in labor markets?
Compensation levels are influenced by the supply and demand for specific KSAs.
What happens when there is a large supply of prospective employees with a skill but low demand for it?
Compensation levels for that skill will be relatively low.
Why is it important to update reward systems regularly?
To ensure they are externally positioned and account for fluctuations in labor markets.
How does geography impact the definition of a labor market?
Jobs with higher-level responsibilities (e.g., VP of Operations) often have national or international labor markets, while lower-level jobs (e.g., factory workers) have more localized markets.
What is the first step in externally positioning a reward system?
Analyze and define the relevant labor market for each job or job family.
What are Product/Service Markets?
They are markets where organizations compete to produce goods or provide services for customers in exchange for money and loyalty.
Why are Product/Service Markets relevant to businesses?
Labor costs impact the price of goods or services, which affects customer demand and profits.
How do Product/Service Markets overlap with Labor Markets?
Employees with KSAs needed for an organization’s strategy are often also in demand by competitors in the same product or service market.
Can two firms be in the same product market but not the same labor market?
Yes, for example, two firms manufacturing computer monitors may share a product market but not a labor market due to geographical differences.
What drives the price an organization can offer for its goods or services?
Labor costs and customer demand play significant roles in driving the price.
What is a key factor for firms when designing pay systems?
Considering both labor markets and product/service markets to remain competitive.
_________________ are one way to establish the price for any good or service.
Governments
International trades
Markets
Stock markets
Markets
Markets are one way to establish the price for any good or service.
Labor markets are where ____________ are the sellers and ____________ are the buyers.
Individuals, governments
Governments, organizations
Individuals, organizations
Organizations, governments
Individuals, organizations
Where skills are scarce and the demand for those skills is high, the compensation levels will be relatively _______ as firms compete for the scarce skills.
High
Average
Slow
Low
High
True or False. Geography has a significant impact on how an organization should define its labor market.
True