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University of Guelph
Human Resources and Organizational Behaviour
HROB 3010
Rhonda Gordon

Chapter 7 – Defining Competitiveness Compensation Strategy: External Competitiveness - comparisons outside the organization are reviewed -refers to pay relationships among organizations (relative to competitors) -shaped by labour market (supply and demand), product market (competition), and organizational factors (size) Pay level- the average of the array of rates paid by an employer: - base + bonuses + benefits + options/number of employees -set pay level below or equal to competitors Pay forms- the mix of the various types of payments that make up total compensation -consider mix of pay forms relative to competitors -pay level and pay forms focus on two objectives: 1. Control Costs -higher the pay level, the higher the labour costs: Labour Costs = Number of Employees X Pay Level - 2. Attract and Retain Employees -company may pay more for worker because it believes higher paid employees are more productive than those at other companies (may be better trained or more innovative) -company may pay more because people are less likely to quit (saves recruiting and training costs) What Shapes External Competitiveness? -competition in the labour market for people with various skills -competition in the product and service markets, which affects the financial condition of the organization -characteristics unique to each organization and its employees (such as business strategy, technology, productivity, and experience of workforce) Labour Market Factors -nature of demand -nature of supply Product Market Factors -degree of competition External Competitivenss -level of product demand Organization Factors -industry, strategy size -individual manager Labour Market Factors -economic theories of labour markets usually begin with four basic assumptions (oversimplify, but provide framework for understanding labour markets): 1. employers always seek to maximize profits 2. people are homogeneous and therefore interchangeable (business school graduate is a business school graduate is a business school graduate) 3. the pay rates reflect costs associated with employment (base wage, bonuses, holidays, benefits, even training) 4. the markets faced by employers are competitive so there is no advantage for a single employer to pay above or below market rate -organizations often claim to be ‘market driven’ which means they pay competitively with the market or even are market leaders) Labour Demand Marginal product of labour- is the additional output associated with the employment of one additional human resource unit, with other production factors held constant Marginal revenue of labour- is the additional revenue generated when the firm employs one additional unit of human resources, with other production factors held constant Modifications to the Demand Side Labour Demand Theories Prediction So What? Compensating differentials – Work with negative characteristics Job evaluation and higher wages must be offered requires higher pay to attract compensable factors most to compensate for negative workers capture these negative features of jobs characteristics Efficiency wage- high wages Above-market wages will improve Staffing programs must have may increase efficiency and efficiency by attracting workers who the capability of selecting the lower labour costs by attracting will perform better and be less best employees. Work must higher-quality applicants who willing to leave be structured to take will work harder -says that high wages may increase advantage of employees efficiency and actually lower labour greater efforts costs if they: 1. attract higher-quality applicants 2. lower turnover 3. increase worker effort 4. reduce ‘shrinking’ (what economists say when they mean ‘slacking off’ 5. reduce the need to supervise employees Signaling-pay levels and pay Pay policies signal the kinds of Pay practices must recognize mix are designed to signal behavior the employer seeks these behaviors by better pay, desired employee behaviors larger bonuses, and other forms of compensation Labour Supply Theories Reservation wage- job Job seekers wont accept jobs Pay level will seekers have a reservation whose pay is below a certain affect ability to wage level below which wage, no matter how attractive recruit they will not accept a job other job aspects Hum
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