MODULE 10

Lesson Presentation:

Everything related to a competitive advantage begins

with hiring and keeping the right people—then making
sure they are focused on the right performance
factors. If you think otherwise, then perhaps you can
identify a company that has the wrong people focused
on the wrong issues and is somehow sustaining a
competitive advantage. It just doesn’t happen.

Your people and their distinctive abilities are the soil

that must be prepared and cultivated before a
competitive advantage harvest can be reaped. This
conclusion is born out in real (business) life over and
over again.
However intuitive this may seem, it is interesting to
observe how many companies focus on peripheral
issues before looking at this foundational starting point
in their competitive advantage quest. Two well-known
authors have noted this fundamental truth.

Creation of a rewards strategy must meets the following standards:

1. Attracts and retains the right people.
2. Focuses those people on the right issues—the key performance factors for your company.
3. Provides rewards (motivating and attainable value sharing) for those individuals to perform at the
highest level.
4. Generates an appropriate return on the company’s compensation investment; pay is linked to a
performance philosophy and standards where incentives are paid out of a greater whole that the
organization’s talent helps create.

The compensation strategy sets a clear guidance for the key remuneration principles in the company. The
strategy defines key strategic behaviors and values, which are remunerated. It defines the values and
behavior, which are valued and rewarded. The compensation strategy makes the difference between the
focused strategic compensation and a bunch of different non-connected compensation components.

This website is called, “CreativeHRM” that covers many HR related topics.

Human Resource Management Practices, strategies, models, business
partnering, processes, development, organizational design are some of its
features.

This software application has a lot to offer specially in human resource

functions and compensation strategies.

Compensation Strategy Challenges

 HR enjoys raised expectations of the top executives. They want HR to increase the performance, to
retain key employees, bring new skilled talents to the company and they want to keep costs under a
strict control.
 Finding, motivating, developing, and keeping employees is a key component of business success.
  The compensation components cannot be managed discretely, they have to be a part of the overall
strategy – the company has to define the competitive compensation strategy.

Key Components of Compensation Strategy

 Pay – The key component for the right positioning of the company
on the market. Generally, the higher pay can attract skilled
employees and reduce turnover if aligned with right values. Most
companies do not use the competitive pay as the advantage; they
set the proper mixture of the pay, benefits and career
opportunities. Examples of pay are the base pay, overtime pay,
short-term incentive, lump sum payments, cash profit sharing.
long-term incentives, and equity plans.

 Benefits – The attractive benefits package can be a real

competitive advantage. If benefits offered aligned with the
corporate culture and values of the company and employees.
The company has to define its strategy for benefits. It is simple to
lay one benefit over another one. The company has to manage
costs of providing benefits. It has to define its core benefits which
will be used as a basis for building the competitive advantage.
Examples are the retirement, health, paid time off, income
protection, death benefits, work/life balance.

 Careers – Careers represent the future value to employees of

staying with the company. The opportunity to learn and grow is
highly valued by many employees. The proper career
management is also a strong cost management tool for the
company. Careers are always connected with the strong
performance management process and with the succession
planning processes. The position and weight of the career
management in the reward mix depends on the industry and the
mixture of employees. Examples are skills enhancements,
leadership and development, career advancement, promotion
process, employment stability, nature of work, rotations and job
enrichment.

MODULE 11

Lesson Presentation:

When producing goods and services, businesses require labor and capital as inputs to their production
process. The demand for labor is an economics principle derived from the demand for a firm's output. That is, if
demand for a firm's output increases, the firm will demand more labor, thus hiring more staff. And if demand for
the firm's output of goods and services decreases, in turn, it will require less labor and its demand for labor will
fall, and less staff will be retained.
Demand for labor is a concept that describes the amount of demand for labor that an economy or firm is willing
to employ at a given point in time. This demand may not necessarily be in long-run equilibrium. It is determined
by the real wage firms are willing to pay for this labor and the number of workers willing to supply labor at that
wage

Labor demand of an employer is the number of labor-hours that the employer is willing to hire based on the
various exogenous (externally determined) variables it is faced with, such as the wage rate, the unit cost
of capital, the market-determined selling price of its output, etc. The function specifying the quantity of labor
that would be demanded at any of various possible values of these exogenous variables is called the labor
demand function. The sum of the labor-hours demanded by all employers in total is the market demand for
labor.
The demand for labor shows how many
workers an employer is willing and able
to hire at a given wage in a given time
period.

 There is an inverse relationship

between demand for labor and
the wage rate.

 If the wage rate is high the

costlier to hire extra employees.

 When wages are lower, labor

becomes relatively cheaper than
capital. A fall in the wage rate
might create a substitution effect
and lead to an expansion in
labor demand.

Elasticity of Labor Demand

Elasticity of labor demand measures the

responsiveness of demand when there is
a change in the wage rate.

 Labor costs as a % of total costs:

when labor expenses are a high %
of total costs, then labor demand is
more elastic.

 Ease and cost of factor

substitution: labor demand is more
elastic when a firm can substitute
easily between labor and capital
inputs.

 Price elasticity of demand for the

final output: This determines
whether a firm can pass on higher
labor costs to consumers in the form of increased prices.

Shift in Labor Demand

 The labor demand curve shifts when there is a

change in the conditions of demand in the jobs
market.

 A rise in consumer demand which means that a

business needs to take on more workers.

 An increase in the productivity of labor which

makes labor more cost efficient than capital.

 A government employment subsidy which allows

a business to employ more workers.
  The labor demand curve would shift inwards during a recession as businesses shed labor

Labor Supply to an Industry/Occupation

The labor supply is the number of hours people are

willing and able to supply at a given wage rate.

 The labor supply curve for any industry or

occupation will be upward sloping.

 As wages rise, other workers enter this

industry attracted by the incentive of higher
rewards.

 The extent to which a rise in the prevailing

wage or salary in an occupation leads to an
expansion in the supply of labor depends
on the elasticity of labor supply

MODULE 12

Lesson Presentation:

The labor market, also known as the job

market, refers to the supply of and
demand for labor, in which employees
provide the supply and employers
provide the demand. It is a major
component of any economy and is
intricately linked to markets for capital,
goods, and services.

The demand for labor encompasses the

determinants of the number of workers
that firms and others wish to employ
along with the intensity with which they
are utilized, particularly their hours of
work. Included is the demand for workers
treated as a single group and for workers
differentiated by their demographic
characteristics and level of skill. Among the major issues are how employers react to changes in the cost of
labor, or the cost of particular group(s) of workers; how cuts in costs of employing one type of worker lead
employers to substitute them for others, and how the relative costs of workers and hours affect employers'
choices between them. The theory underlying these issues is discussed and an evaluation of the state of
knowledge on all of them is provided. The evidence is relevant for evaluating the impact of a wide variety
of labor-market policies, including minimum wages, overtime restrictions and penalties, and payroll taxes.
Labor demand takes time to adjust, with the path of adjustment determined by impediments imposed by the
costs of hiring and firing and by government regulations. The article summarizes the evidence on the effects of
these costs and on the role of government regulations in altering the level and time path of employment.

Key Factors: Industry / Occupational Labor Supply

1. Real wage rate on offer in the industry itself.

2. Extra pay such as overtime, productivity pay, and share options
3. Wages in substitute occupations such as increase in the earnings for plumbers and electricians
may cause people to switch their jobs.
 4. Barriers to entry such as artificial limits to an industry’s labor supply (minimum entry
requirements) can restrict supply and increase wages

Elasticity of Labor Supply

Elasticity of labor supply measures the extent to which labor supply responds to a change in the wage rate in a
given time period.

Equilibrium Wages in the Labor Market

The equilibrium market wage rate is at the intersection of the supply and demand for labor. Employees are
hired up to the point where the extra cost of hiring an employee is equal to the extra sales revenue from selling
their output.

Key Causes of Pay Differentials in the Labor Market

1. Compensating wage differentials – A reward for risk-taking, working in poor conditions and during
unsocial hours.
2. Reward for human capital – Differentials compensate workers for (opportunity and direct) costs of
human capital acquisition.
3. Different skill levels – Market demand for skilled labor (with inelastic supply) grows more quickly than
for semi-skilled workers.
4. Differences in labor productivity and revenue creation – workers whose efficiency is highest and
ability to generate revenue for a firm often rewarded with higher pay.
 5. Trade unions who might use their collective bargaining power to achieve a mark-up on wages
compared to non-union members.
6. Other artificial barriers to labor supply such a professional exams.
7. Employer discrimination – A factor that cannot be ignored despite over twenty years of equal pay
legislation in place.

MODULE 13

Lesson Presentation:

Most managers would agree that

motivated, productive employees are crucial
for organizational success, regardless of
company size, industry, or corporate
strategy. The question is how to motivate
them. Offering employees performance-based
incentive pay is one common approach, and it
usually takes one of two forms: bonuses
are offered to individuals based on
assessments of their performance, or bonuses
are offered as organization-wide incentives,
such as profit-related pay or share ownership.
Sometimes, these incentives work in ways
managers intended them to. But there are
ways in which these methods of performance
pay can backfire, causing contentious
behaviors among employees, complaints about
unfair pay distribution, or overwork and stress. Although these critical issues represent real problems for many
businesses, little progress has been made in gathering evidence on how different incentive pay schemes
— performance-related pay, profit-related pay, and share ownership — might affect employee well-being.

Strategic Reasons for Incentive Plans

 Variable Pay – Tying pay to some measure of individual, group, or organizational performance.
 Incentive Pay Programs – Establish a performance “threshold” to qualify for incentive payments. It
emphasizes a shared focus on organizational objectives and create commitment in that every individual
contributes to organizational performance and success.
o It focused on key performance targets that produce employee and organizational gains.
o Variable costs of payouts are linked to the achievement of competitively important results.
o Directly relating payouts to achieving operating performance objectives (quantity and quality)
o Teamwork and unit cohesiveness are fostered by basing payments to individuals on team
results.
o Used to distribute success among those responsible for producing that success.

Successful Incentive Plans

 Employees have a desire for

an incentive plan.
 Employees are encouraged to
participate.
 Employees see a clear
connection between the
incentive payments they
receive and their job
performance.
 Employees are committed to
meeting the standards.
  Standards are challenging but achievable.
 Payout formulas are simple and understandable.
 Payouts are separate, distinct part of compensation.

Setting Performance Measures – the

keys

 Ensure that performance

measures are consistent with the
strategic goals of the
organization.
 Define the intent of performance
measures and champion the
cause relentlessly.
 Involve employees at all levels.
 Consider the organization’s
culture and workforce
demographics.
 Widely communicate the
importance of performance measures.

Effective Incentive Plan Administration

 Grant incentives based on individual performance differences.

 Have the financial resources to reward performance.
 Set clearly defined, accepted, and challenging yet achievable performance standards.

Individual Incentive Plans

 Straight Piecework – An incentive plan under

which employees receive a certain rate for each
unit produced.
 Differentials Piece Rate – A compensation rate
under which employees whose production
exceeds the standard amount of output receive a
higher rate for all of their work than the rate paid
to those who do not exceed the standard
amount.

Drawbacks of Piecework

 Piecework standards can be difficult to develop

 Individual contributions can be difficult measure.
 Not easily applied to work that is highly mechanized with little employee control over output.
 Piecework may conflict with organizational culture (teamwork) and/or group norms (rate
busting)
 When quality is more important than quantity.
 When technology changes are frequent.
 When cross-training is required for scheduling flexibility.

Individual Incentive Plans:

 Standard Hour Plan – It sets pay

rates based on the completion of a
job in a predetermined standard time
no matter if the employees finished
the work in less than the expected
time.
 Bonuses – It is supplemental to the base wage for cost reduction, quality improvement, or other
performance criteria.
o Spot Bonus – Unplanned bonus given for employee effort unrelated to an established
performance measure.
 Merit Pay – Merit raise links anincrease in base pay to how successfully an employee achieved some
objective performance standard.
o Merit guidelines is a guideline for awarding merit raises that are tied to performance objectives.
o Problems encountered with merit raises is inadequate funding, vagueness in performance
measure, influence of organizational politics, and mistrust between management and
employees.
o Things need to take into consideration is to develop employee confidence and trust in
performance appraisal, establish job-related performance criteria, separate merit pay from
regular pay and distinguish merit raises from cost-of-living raises.
 Lump-Sum Merit Pay – It is a program under which employees receive a year-end merit payment,
which is not added to their base pay. It provides financial control by maintaining annual salary
expenses and not escalating base salary levels. It also contains employee benefit costs for levels of
benefits normally calculated from current salary levels and provides a clear link between pay and
performance.