Outline
I. Market-Competitive Pay Systems: The Basic Building Blocks
A. Definition
B. Market-Competitive Pay Systems
II. Compensation Surveys
A. Purposes
B. Preliminary Considerations
C. Using Published Compensation Survey Data
D. Compensation Surveys: Strategic Considerations
E. Compensation Survey Data
III. Integrating Internal Job Structures with External Market Pay Rates
IV. Compensation Policies and Strategy Mandates
V. Discussion Questions and Suggested Answers
VI. End of Chapter Case; Instructor Notes, and Questions and Suggested Student
Responses
VII. Additional Cases from the MyManagementLab Website; Instructor Notes,
and Questions and Suggested Student Responses.
Quick Note: Throughout this chapter, students should bear in mind that it is important to
remember the firm’s competitive strategy when making compensation recommendations.
Two companies could have entirely different market-competitive pay systems, and have
those both be ideal strategies for their respective firms.
, Lecture Outline
I. Market-Competitive Pay Systems: The Basic Building Blocks
A. Definition
1. Market-competitive pay systems represent companies’ compensation
policies that fit the imperatives of their competitive advantage
2. These systems play a significant role in attracting and retaining the most
qualified employees
3. Should promote companies’ attainment of competitive strategies
4. Excess pay levels can:
a. Represent an undue burden
b. Undermine lowest-cost strategies
c. Restrict a company’s ability to invest in other important strategy
activities
5. Companies with differentiation strategies must strike a balance between:
a. Offering attractive pay incentives to hire and retain good employees
b. Providing sufficient resources for employees to excel
B. Market-Competitive Pay Systems
1. Based on four activities
a. Conducting strategic analyses
b. Assessments of competitors’ pay practices with compensation surveys
c. Integrating the internal job structure with external market pay rates
d. Determining compensation policies
2. Conducting strategic analyses
a. Entail an examination of a company’s external market factors like:
i. Industry profile
ii. Information about competitors
iii. Long-term growth prospects
b. Require an examination of a company’s internal factors like:
i. Its financial condition
ii. Its functional capabilities, such as marketing and human resources
3. Assessments of competitors’ pay practices with compensation surveys
a. Involve the collection and analysis of competitors’ compensation data
i. Wages and salary practices
ii. Fringe compensation practices - a key element of market-
competitive pay systems
b. The surveys allow compensation professionals to obtain realistic views
of competitors’ pay practices.
, 4. Integrating the internal job structure with external market pay rates with
the external market pay rates identified through compensation survey
a. Results in pay rates that reflect both the company’s and the external
market’s valuation of jobs
b. The integration is generally achieved by using regression analysis
5. Determining compensation policies
a. The policies should fit with the company’s standing and competitive
advantage
b. The policies must strike a balance between managing costs and
attracting and retaining the best qualified workers
II. Compensation Surveys
A. Purposes
1. Consulting or developing compensation surveys is the second step in
assessing external competitiveness
2. These are tools used to gather data about competing companies’
compensation practices
B. Preliminary Considerations
1. Main considerations
a. What companies hope to gain from compensation surveys
b. Which type of survey to use
2. What companies hope to gain from compensation surveys
a. Competitors’ compensation practices
b. Employee’s preferences for alternative forms of compensation due to
economic changes
3. Competitors’ compensation practices
a. Base pay
b. Incentive award structures
c. Both mix and level of discretionary benefits
i. Mix refers to the percentage of employer compensation costs to
provide compensation and benefits
ii. Level refers to amounts actually or potentially paid to employees
or beneficiaries
d. Ability to make sound judgments about pay levels
i. Sound decisions promote employers’ efforts to sustain competitive
advantage
ii. Poor decisions compromise competitive advantage
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