WEEK THIRTEEN: CHAPTER 13
Managing Labour Costs
controlling employment: head count and hours
controlling average cash compensation costs
Heads & Hours
o Get current employees to work more hours
Hire additional full time employees: Experienced Hires versus New Grads
o Or hire additional contingent workers
o Get current employees to work fewer hours
o Get rid of some contingent workers
o Get rid of some full time employees: those who have been with you for a long time versus those who
were just hired
Controlling Salary Costs: Top Down
Top management sets an estimated pay increase budget for the whole organization.
A typical approach is planned pay-level rise,
o the percentage increase in average pay.
o factors influencing size of increase:
current years rise
ability to pay
competitive market rates
turnover effects, and
cost of living.
Controls on managers pay decisions come from those inherent in the design of the compensation system:
o Range maximums and minimums.
o Broad bands
o Variable pay
o Analyzing costs
o Analyzing value added
Range midpoints reflect the pay policy line in relation to external competition.
o To assess how pay relates to the midpoint, an index called a compa-ratio is often used.
o Compa-ratio = average rate actual paid / range midpoint
o A ratio less than 1 means below midpoint pay.
o A ratio greater than 1 pays above the midpoint.
Variable pay must be re-earned each period.
o The financial insecurity may affect employees.
Costing out wage proposals is done prior to recommending pay increases.
o Software is available to analyze every aspect of compensation information.
Companies analyze the value added of pay decisions and influence on revenues.
o Requires a shift in viewing compensation as an investment as well as an expense.