Market-competitive pay systems represent companies compensation policies that fit the imperatives of competitive advantage. Market-competitive pay systems play a significant role in attracting and retaining the most qualified employees. Well-designed pay systems should promote companies attainment of competitive strategies. Paying more than necessary can undermine lowest-cost strategies: Excessive pay levels represent an undue burden. In addition, excessive pay restricts companies abilities to invest in other important strategic activities (e.g., research and development, training) because
Market-competitive pay systems represent companies compensation policies that fit the imperatives of competitive advantage. Market-competitive pay systems play a significant role in attracting and retaining the most qualified employees. Well-designed pay systems should promote companies attainment of competitive strategies. Paying more than necessary can undermine lowest-cost strategies: Excessive pay levels represent an undue burden. In addition, excessive pay restricts companies abilities to invest in other important strategic activities (e.g., research and development, training) because money is a limited resource. Companies that pursue differentiation strategies must strike a balance between offering sufficiently high salaries to attract and retain talented candidates and providing sufficient resources to enable them to be productively creative. Compensation professionals create market-competitive pay systems based on four activities: 1-Conducting strategic analyses. 2-Assessing competitors pay practices with compensation surveys. 3-Integrating the internal job structure with external market pay rates. 4-Determining compensation policies. Internally consistent compensation system clearly define the relative value of each job among all jobs within a company. First, a strategic analysis entails an examination of a companys external market context and internal factors. Examples of external market factors include industry profile, information about competitors, and long-term growth prospects. Internal factors encompass financial condition and functional capabilities (e.g., marketing and human resources). If your instructor assigned this, you will have the opportunity to develop a strategic analysis plan in the Building Strategic Compensations Systems case.Second, compensation surveys involve the collection and subsequent analysis of competitors compensation data. Compensation surveys traditionally focused on competitors wage and salary practices. Employee benefits have more recently become a target of surveys because benefits are a key element of market-competitive pay systems. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors pay practices. In the absence of compensation survey data, compensation professionals would have to use guesswork to try to build market-competitive compensation systems, and making too many wrong guesses could lead to noncompetitive compensation systems that undermine competitive advantage. Third, compensation professionals integrate the internal job structure (Chapter 6) with the external market pay rates identified through compensation surveys. This integration results in pay rates that reflect both the companys and the external markets valuations of jobs. Most often, compensation professionals rely on regression analysis, a statistical method, to achieve this integration. Finally, compensation professionals recommend two sets of pay policy options that fit with their companies standing and competitive strategies. As we discuss later in this chapter, compensation professionals must strike a balance between managing costs and attracting, motivating, and retaining the best-qualified employees. Top management ultimately makes compensation policy decisions after careful consideration of compensation professionals interpretation of the data and strategic considerations. Ideally, companies engage in these steps annually to ensure that their systems remain competitive as market pay rates generally rise over time. Changing business priorities sometimes influence expectations of employees. Companies would be well served by reconsidering pay mix policies as changes occur. These policies (and policy changes) are codified in compensation plans. Compensation plans represent the selection and implementation of pay level and pay mix policies over a specified period, usually one year. Question: Can companies easily develop compensation that is both internally consistent and market competitive? What are some of the challenges to this goal? Explain.
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