MOS 3342 - Chapter 7.docx

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Management and Organizational Studies
Course Code
Management and Organizational Studies 3342A/B
Linda Eligh

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MOS 3342 – Textbook Notes Chapter 7 – Defining Competitiveness  Compensation strategy: external competitiveness o Pay level – the average of the array of rates paid by an employer: base + bonuses + benefits + options/number of employees o Pay forms – the mix of the various types of payments that make up total compensation o Comparisons outside the org are reviewed – comparisons with other employers o Competitiveness includes choosing the mix of pay forms that is right for the business strategy – org’s pay relative to its competitors o Setting a pay level that is above, below, or equal to competitors AND by considering the mix of pay forms relative to those of competitors o Pay level and forms focus on: controlling costs AND attracting and retaining employees o Control costs  The higher the pay level, the higher the labour costs  Labour costs = pay level x number of employees  Same work IS paid differently o Attract and retain employees  Different employers set different pay levels deliberately – no “single going rate” for a job  A single company may set diff pay level policies for different job families  How a company looks in comparison to the market depends on the companies they compare to and the pay forms included in the comparison  What shapes external competitiveness? o Competition in the labour market for people with various skills o Competition in the product and service markets which affects the financial condition of the org o Characteristics unique to each org and its employees such as its business strategy, technology  Labour market factors o 4 basic assumptions:  Employers always seek to maximize profits  People are homogenous and therefore, interchangeable  The pay rates reflect all costs associated with employment  The markets faced by employers are competitive o Must analyze the supply and demand of labour – demand focuses on the actions of the employer and supply side looks at potential employees o Labour demand – Look at PPT Notes o Labour supply – assumes that people are seeking jobs, that they possess accurate info about all job openings, and that no barriers to mobility exists (discrimination, union membership requirements) between jobs  As pay increases, more people will be willing to take a job  BUT if unemployment rates are low, offers of higher pay may not increase supply – everyone who wants to work is already working  An employer who dominated the local labour market may also find that rising wages doesn’t necessarily attract more applicants simply because supply has dried up  Thus to attract new people to join the labour force the supply line on the graph may the take the shape of a “step” function due to the large pay increases needed  OR company can lower job requirements and hire less skilled workers – increasing training costs  Modifications to the demand side o Economic theories must be frequently revised to account for reality – 3types of modifications:  Compensating differentials theory – higher wages must be offered to compensate for negative features of jobs  Adam Smith – individuals consider the “whole of the advantages and disadvantages of different employments” – take alternative with best net advantage  If the necessary training is very expensive (medical school), job security is tenuous (stockbrokers), working conditions are disagreeable (construction), or chances of success are low (professional sports) – offer HIGHER wages  Explain the presence of various pay rates in the market  Efficiency wage theory – high wages may increase efficiency and lower labour costs by attracting higher-quality applicants who will work harder  Lower turnover, increase worker effort, reduce slacking off (shirking), and reduce the need to supervise employees  Pay level determines effort – difficult to document  Research  higher wages do attract more qualified applicants but also attract unqualified applicants  STUDY of hospitals  pay nurses higher wages and hired less nurse supervisors  Firms with greater profits than competitors are able to share this success with employees  Does not discuss may mix  Signalling theory – pay levels and pay mix are designed to signal desired employee behaviours  An employer who combines lower base with high bonuses may be signalling that he wants employees who are risk takers  Pay level and mix affect students’ job decisions – showed a preference for individual based- pay, fix-based pay, job-based pay, and flexible benefits  Pay level is most important to materialists and less important to those who are risk averse  Select job opportunities based on the perceived match between their personal dispositions and the nature of the org as signalled by the pay system  Suppliers of labour signal to potential employers as well about their fit in the org – so characteristics of applicants and org decisions about pay levels and mix act as signals  Modifications of the supply side o Reservation wage theory – job seekers have a reservation wage level below which they will not accept a job no matter how attractive the other job attributes  Will not accept a job if it does not meet their minimum pay standard – and will take the first job offer they get where the pay meets their reservation wage o Human capital theory – higher earnings are made by people who improve their potential productivity by acquiring education, training, and experience (investing in themselves)  Thus jobs that require long and expensive training should receive higher pay levels than jobs that require less investment  Product market factors and ability to pay o An employer’s pay level is constrained by its ability to compete in the product/service market o Product demand and degree of competition affect the ability of orgs to change what it charges for products o Product demand  Puts a lid on the maximum pay level that an employer can set  If employer pays above maximum – must pass on this high level to consumers through prices OR hold prices fixed and allocate a higher % to labour costs from the budget o Degree of competition  Companies in highly competitive markets are less able to raise prices without loss of revenues o Productivity of labour, technology used, level of production relative to plant capacity – affect comp decisions  A dose of reality – what managers say o Study  managers asked to make wage adjustment recommendations for diff scenarios  Think is short-sighted to pay less even if the market conditions would permit lower pay  Believed that problems attracting and keeping people were the result of poor management rather than inadequate compensation  More reality – segmented supply of labour o People flow to the work – segmented labour supply means using multiple sources of nurses from multiple locations with multiple employment relationships – part-time, full-time, temporary through an agency  Level and mix of pay paid to these nurses depends on the source  Results in the nurses working the same job side-by-side but earning different pay o Work flows to the people – on site, off site, offshore – off site  contract employees throughout Canada, Offshore  across international borders – so people go to the work o Reality is complex, theory abstracts – allows us to understand the big picture but does not focus on detail o The segmented sources of labour mean that determining pay levels and mix increasingly requires understanding market conditions locally and globally o Managers
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