Determining Pay Mix and Pay Levels in a Competitive External Environment

Determining Pay Mix and Pay Levels in a Competitive External Environment

Factors Shaping an Organization’s Competitiveness

One of the external factors that affect an organization’s competitiveness is the general economic situation in the country. Regardless of the internal efforts a business makes, if the economy is bad, even the most strategic organizations fail. With a bad economy, people are likely to spend less on luxury, sporting events, and credit cards, among others (Zelga, 2017). That means the business will have little to offer in terms of payment to its employees. Also, government policy significantly impacts an organization’s labor market competitiveness. For instance, during the COVID-19 pandemic, most governments offered businesses in their respective countries a boost to help them survive the harsh economic times. Besides, the nature of an organization’s suppliers affects its competitiveness since it impacts cost. A company with little power over suppliers is likely to incur more costs and, hence, less competitive.

Lead, Lag, and Match Policies

The lead payment policy refers to when the company sets its salaries ahead of the market level. The policy applies when there is a limited workforce, highly skilled staff, and specific industries that are profitable (Sturman & McCabe, 2007). The organization typically sets targets, say six months, to stay ahead before other market players catch up.

On the other hand, companies that are comfortable paying below the industry average use a lag payment policy. The policy comes into play when there is an abundant or less skilled workforce.

Finally, matching refers to paying the average level for all jobs across the labor market. An employer using the policy lags in the industry before they gain and start leading (Sturman & McCabe, 2007). Essentially, it is a balance between leading and lagging.

Facebook Payment Policy

Facebook follows the lead policy when paying its employees. At Facebook, salaries for new employees and additions to the current team are determined through a formula. That means there is little room for negotiation between the employer and its employees. Facebook is among the companies that pay above the median salaries in the labor market. The decision is partly attributable to the fact that the company belongs to a very competitive industry that rakes significant revenue. For instance, in 2017, Facebook paid a median salary of $240,430, surpassing industry players like Alphabet, Twitter, and Netflix (SEC, n.d.). Another reason for the company’s relatively high pay is that it is usually in search of highly skilled employees, setting the bar high to attract the best.

Factors Influencing Choice of Survey Market

Many reasons may influence an organization to conduct a survey, but determining the right audience is the first step toward getting meaningful feedback. One of the factors that may influence the choice of the survey market is age. Employees from different generations tend to have diverse attitudes on the correct pay. Therefore, a company will get reliable information if the survey occurs in a market that contains a mix of employees of the same age as the company itself. Furthermore, factors such as adult responsibilities and money-spending behavior influence one’s spending tendencies, hence a key factor when determining how much to pay employees.

Another crucial factor when determining the pay survey market is by looking at the geography of the businesses. For instance, if a company wishes to grow and compete for employees locally, the companies near it should be considered for surveying. However, if the organization has foreign conglomerates or expanded internationally, the survey market should be equally expansive.

Further, the market classification influences the decision on where to conduct a survey. An organization should survey the right market to get valuable data. For instance, the right market for companies like Facebook should be its industrial peers such as Alphabet and Twitter.

Addressing Discrimination in Pay Policy

A critical step to addressing pay discrimination, whether real or perceived, is designing an equal pay action plan. In writing, a commitment should follow that to provide equal pay for all employees. Next is to negotiate with trade unions or directly with employees to develop a compromise position. Consequently, the company ought to conduct equal pay audits and correct any noticeable discrepancies. Finally, the company should communicate with employees about the outcome of the process.

Job Evaluation over Market Pricing

There is a debate on whether companies ought to use job evaluation to determine pay or rely on market pricing. Companies prefer to conduct job evaluations to determine the right pay since they internally audit an organization’s position (Armstrong & Brown, 2017). On the contrary, market pricing uses external data when assigning value to a company’s compensation levels. Both methodologies provide crucial data for determining an organization’s equitable pay level. The two methodologies should be combined to attain the most appropriate equitable pay in a company. The resulting hybrid policy is vital in boosting business value through talent management.

References

Armstrong, M., & Brown, D. (2017). Job evaluation versus market pricing: Competing or combining methods of pay determination? Compensation & Benefits Review, 49(3), 153-       160.

SEC. (n.d.). EDGAR Search Results. Www.sec.gov. Retrieved January 29, 2022, from https://www.sec.gov/cgi-bin/browse-edgar?company=FACEBOOK&match=&filenum=&State=&Country=&SIC=&myowner=exclude&action=getcompany

Sturman, M. C., & McCabe, D. (2007). Choosing Whether to Lead, Lag, or Match the Market. Journal of Human Resources in Hospitality & Tourism, 7(1), 85–97. https://doi.org/10.1300/j171v07n01_05

Zelga, K. (2017). The importance of competition and enterprise competitiveness. World    Scientific News, 72, 301-306.

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If workers leave their jobs in record numbers, as cited in the discussion, and they leave in droves to seek more money, how can companies be competitive in the labor market? If they have to create a pay system that is better than their competitors, what is the cost to their bottom line? Is it always best to match the pay rates of the competition, or are there benefits to setting the pay rate higher or lower? Are salary surveys the best way to determine the correct pay level and pay mix relative to competitors and company resources?

Do people choose to work for a company solely based on base salary? Are there other factors outside of salary or base pay that will shape employee behavior and attract qualified, eager potential employees? What role does the stock market have in salary decisions? As you can see, there are many factors to be considered when establishing pay levels and pay mix, as well as their influences on employee attitudes and work behaviors.

In this Assignment, you will explore the elements that affect external competitiveness, the components of a pay-mix policy, and the advantages and disadvantages of market pricing. In addition, you will consider the factors that influence why companies choose specific pay level policies.
To complete this Assignment, review the Learning Resources for this week and other resources you have found in the Walden Library or online, then respond to the following bullet points in a 3- to 4-page paper:

Analyze three factors that shape an organization’s external competitiveness.
Examine the difference between lead, lag, or match policies when determining pay level policies.
Research a company in your current industry and examine why you believe the company uses its current pay level policy. Considerations should be given to a company that has the ability to attract or retain employees, labor cost containment, pay dissatisfaction, and productivity increases. A popular and well-designed website to use could be the following:
U.S. Securities and Exchange Commission. (n.d.). EDGAR. Company filings. https://www.sec.gov/edgar/searchedgar/companysearch.html
To find a particular company’s Form 10-K filings, use the Company Search for the SEC’s EDGAR database. On the returned listing of filings for the company, enter “10-K” in the Filing Type box near the top of the page to filter for only 10-K forms that have been filed.
Examine factors that determine the relevant market for conducting a survey.
Outline the steps organizations should take if they discover discrimination as a factor in their pay policy.
Explain why a company would conduct a job evaluation and not simply use market pricing.