External Competitiveness. External Competitiveness. Weekly Summary
Please answer the following questions. Use complete paragraph that are grammatically correct.
1. As you reflect on the information in this week’s assigned reading, did you find that you already had a basic understanding of the materials or was the information somewhat foreign to you? Please explain in 3-5 complete sentences.
2. List 3 main concepts, ideas, etc. that you learned this week that you did not know before or found interesting. Write 3-5 sentences about each of the three main concepts.
3. Do you have any questions? (No, I do not have any questions is an acceptable answer for this question. If yes, please explain.).
LECTURE FROM THE BOOK
Chapter 7 concentrates on the key concepts, issues, and theories related to external competitiveness, the second pay policy in the pay model. External competitiveness focuses on pay comparisons outside the organization. It refers to the pay relationships among organizations – an organization’s pay relative to its competitors. External competitiveness involves making decisions in two areas: pay level and pay mix. To achieve the objectives stipulated for its pay system, an organization must properly position both the pay level and the pay mix relative to its competitors.
The key factors that influence external competitiveness are identified and discussed. These factors include: 1) competition in the labor market for people with various skills; 2) competition in the product and service markets, which affects the financial condition of the organization; and 3) characteristics unique to each organization and its employees – business strategy, technology, and the productivity and experience of its work force. Next, the various competitive pay policy options that an organization can choose are explained. These alternatives include: pay above market (lead), pay with market (match), pay below market (lag), flexible policies, and employer of choice. The chapter concludes by examining the consequences of an employer’s choice of a pay policy on the objectives of the pay model – efficiency, fairness, and compliance.
Chapter 8 focuses on the major decisions and techniques involved in determining an organization’s external competitiveness policy – establishing pay levels and pay mix forms and designing pay structures. Most organizations survey other employers’ pay practices to determine the rates competitors pay. Based on the survey results, an employer considers how it wishes to position its total compensation in the market: lead, match, or lag its competitors. This policy decision may differ for different business units and even for different job groups within a single organization. An organization’s competitive position policy is translated into practice by setting pay-policy lines which serve as reference points around which pay grades and ranges or bands are designed.
There are seven major decisions involved in setting externally competitive pay and designing the corresponding pay structures. They include: (1) specify the employer’s competitive pay policy; (2) define the purpose of the survey; (3) select relevant market competitors; (4) design the survey; (5) interpret survey results and construct the market line; (6) construct a pay policy line that reflects the external pay policy; and (7) balance competitiveness with internal alignment through the use of ranges, flat rates, and/or bands.
The chapter concludes with a discussion on the issues associated with combining the internal structure (job evaluation results) with external market rates. Internal alignment and external competitiveness merge together in a pay structure which has two aspects: the pay-policy line and pay ranges. The pay-policy line translates an organization’s external competitive policy into practice. Use of pay grades and ranges or bands offers flexibility to deal with pressures from both external and internal pressures on pay decisions. The process of balancing internal and external pressures is a matter of judgment. De-emphasizing internal alignment may lead to unfair treatment among employees and inconsistency with the fundamental culture of an organization. On the other hand, neglecting external competitive pay practices will affect the ability to attract and hire applicants who match an organization’s needs. External pay relationships also impact labor costs and hence the ability to compete in the product/service market.
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