Building Market Competitive Strategy Essay

3355 words - 14 pages

A Human Resource Management Approach

Chapter 6

Building Market-Competitive Compensation Systems

Prepared by Johnny Hanes

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall


What Is External Competitiveness?

External competitiveness refers to pay relationships among organizations - an organization’s pay relative to its competitors.
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What is Pay Level?

Pay level refers to the average of the array of rates paid by an employer: (base + bonuses + benefits + value of stocks) / number of employees.
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Excessive Pay Levels

Represent undue financial burdens


Undermine lowest-cost strategies
Restrict investments


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Market Competitive Pay Systems

Conduct strategic analyses (entails the external market along with internal factors)


Assess competitors’ practices
Integrate internal job structures with external market pay rates Determine compensation policies


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Four Activities of Market Competitive Pay Systems




Strategic analysis entails an examination of a company’s external market context and internal factors. Compensation surveys involve the collection and subsequent analysis of competitors’ compensation data. Compensation professionals integrate the internal job structure with the external market pay rates identified through compensation surveys. Compensation professionals recommend pay policies that fit with their companies’ standing and competitive strategies.

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External Market Factors

Industry profile Information on competition Long-term growth prospects



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Competitors’ Pay Practices

Base pay Incentive awards structure
Mix and level of discretionary benefits


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Relevant Markets

Three factors determine relevant labor markets – Occupation – Geography – Competitors


Employers choose their relevant markets based on
– Competitors – Products, location, and size – Jobs – Skills and knowledge required and their importance to organizational success

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Relevant Markets (cont.)

Data from product market competitors likely to receive greater weight when:
– Employee skills are specific to the product market – Labor costs are a large share of total costs – Product demand is responsive to price changes – Supply of labor is not responsive to changes in pay

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Competitive Pay Policy Alternatives

Three conventional pay-level policies:
– To lead – To meet – To follow competition


Newer policies emphasize flexibility among:
– Policies for different employee groups – Pay forms for individual employees – Elements of the employee relationship that company wishes to emphasize in its external competitiveness policy

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall


Pay with Competition (Match)
Attempts to ensure an...

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