Compensation Management - Chapter 7

Debrief
Chapter 7 –
Defining Competitiveness
Group 6
AGENDA
Internal Alignment
1 Definition
External Competitiveness 2 Objective
Objective
3 Factors
Employee Contribution
4 In Practice
Management
Group 6
Compensation Strategy – External Competitiveness
Look at the comparison outside the organizations

- How do you compare?
At individual
- Same Background/education?
- Same job
At company
- Same industry
- Similar size
Note to ourself : Throw the question first?
Group 6
Definition Objective Factors In Practice
“ External Competitiveness refers to the pay relationships amoung organization - The

organinzation’s pay relative to its competitor”
Note to ourself : add picture Objectives

• Control cost and
increase revenue
• Attract and retain
employees
(1) Setting a pay level that is above, (2) Determining the mix of pay
below, or equal to competitor form relative to competitors
Pay Level : Average of the array of rates paid by an employee

Pay form : Various types of payment or pay mix that make up total compensation
Note to ourself : do we need to explian
Group 6
these 2 terms?
”Both pay level and pay mix decision focus of two objectives..”
1 Control cost and increase revenue 2
• Higher Pay level = increase in

expense/cost
• Company providing the same
product or service, if pay higher
than competitor = lost competitive
advantage
• Paying higher does not always
mean effective strategy
Note to ourself : adjust wording
Group 6
”Both pay level and pay mix decision focus of two objectives..”
2 Attract and retain employees
• Some company may pay more,

believing the employee would be
more productive
• Some company may differenciate
using non-financial return
Group 6
What Shapes External Competitiveness
“(1)Labor Market Factors, (2)Product Market Factors, and (3)Organization Factors affect
decisions on pay level and pay mix”
Group 6
What Shapes External Competitiveness
odification?I think its
behind it. But the key
ld be
ght use different way
the pay, Labor Market Factors Product Market Factors Organization Factors
• An employer’s pay level is limited

by its ability to compete in
product/service market.
• In high competitive market,
company cannot just increase the
price.
• Technology used in that industry
• The market rate is where the lines influence the pay
for labor demand and labor supply • Bigger company tend to pay higher?
cross • What pay forms do employee value?
• Company define the number to hire Flexible benefit plan?
base on marginal product and • Organization Strategy; Innovation-
marginal revenue oriented, process-oriented, result-
• It’s framework but the fact cannot be oriented
measured in the real world
Group 6
Labor Market Factors – Demand and Supply Modification
KEY TAKEAWAY : There is no real “market

rate”, Individual company might use different
ways to determine the pay level and pay mix
that is suitable for the company.
Group 6
Relevant Markets
Key Question : What is the right pay to get the right people to do the right things?
Look at both competitors (Product,

Degine Relevant How to choose relevant
location, size) and the jobs (skills,
Market markets to get the right pay?
knowledge required)
Globalization of What model to choose to get

Relevant Labor the right people to do the
Markets right things?
Group 6
Competitive Pay Policy Alternatives
“ There are three conventional pay-level policies: to lead, to meet, or to follow competition. Newer
policies emphasize flexibility…”
Pay with Competition Lag Pay-Level Policy Not by Pay Level Alone
To Match rates paid by competitors Below-Market rate with the

to ensure market competitiveness and promise of higher future returns
ability to attract applicant
Lead Pay-Level Policy Different Policies for Different

Employee Group
To maximize the ability to
attract and retain quality
employees and minimize
employee dissatisfaction
Group 6
Consequense of Pay-Level and Mix Decisions
“xxx”
Group 6
Q&A
Chapter 7 – Discussion
Defining Competitiveness
Group 6

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Debrief

External Competitiveness 2 Objective

Look at the comparison outside the organizations

Note to ourself : Throw the question first?

“ External Competitiveness refers to the pay relationships amoung organization - The

Note to ourself : add picture Objectives

Pay Level : Average of the array of rates paid by an employee

1 Control cost and increase revenue 2

• Higher Pay level = increase in

Note to ourself : adjust wording

2 Attract and retain employees

• Some company may pay more,

• An employer’s pay level is limited

KEY TAKEAWAY : There is no real “market

Look at both competitors (Product,

Globalization of What model to choose to get

To Match rates paid by competitors Below-Market rate with the

Lead Pay-Level Policy Different Policies for Different

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