Unit 5 Discussion Topic 1 External Competitiveness and Broad Banding Consider th
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Question
Unit 5 Discussion Topic 1
External Competitiveness and Broad Banding
Consider the theories and research presented in Chapter 7. Identify an area where more research is needed and propose a research study to further the knowledge of external competitiveness.
Summarize how internal structures and external market rates merge as components of a pay structure.
Unit 5 Discussion Topic 2
External Competitiveness and Broad Banding
What is broad banding? Provide an example of when you might use broad rather than a more traditional approach of designing pay grades and ranges.
Use your favorite search engine to find information on the average salaries in different occupations and search for the following search terms: Salary, wizard. Obtain a basic report containing descriptions and average salary information for your occupation of choice. Please relate anything useful from your Web search as it relates to this issue.
Explanation / Answer
External Competitiveness Strategies
Firms may pursue a lead, lag, or match external competitiveness strategy. By pursing a lead strategy firms choose to lead prevailing market wages and pay employees more than the wages being paid to similar employees in other organizations. Conversely, firms with a lag strategy choose to lag prevailing market wages. Lastly, firms that adopt a match strategy simply match prevailing market wages.
In business, a external competitiveness refers to the dynamic system in which a business or company competes and functions against other businesses and companies. To put it another way, if there are many companies that offer the same product or service, then the environment is externally competitive.
Lead Relative Wage Strategy?
Firms will choose to pay market leading wages when the value of employees’ organizational contributions are deemed to justify wages above those provided by competing organizations. One theory that is particularly useful in understanding these decisions is efficiency wage theory, which proposes that high wages may generate a host of organizational benefits.
Lag Relative Wage Strategy Although efficiency wage theory suggests firms will find a lead relative wage strategy most advantageous, not all organizational situations lend themselves to the use of this strategy. Indeed, while some positions may justify high wages because of their potential organizational contributions, other positions may conversely not justify high wages due to their lack of organizational contribution.
Match Relative Wage Strategy
The final relative wage strategy available to organizations is to match prevailing market wages. In practice, a match strategy is the most common relative wage strategy (Klaas & McClendon, 1996; Milkovich & Newman, 2007). Predictably, by virtue of their matching wage levels, firms pursuing a match relative wage strategy will experience similar wage level based attraction and retention benefits as competing organizations (Milkovich & Newman, 2007).
External Salary Level Determination
Before firms can pursue a particular external competitiveness strategy, they must first assess the prevailing wage level for a specific position. The next section will consider various facets of the process of determining appropriate prevailing wage levels upon which to base an external competitiveness strategy. Simplistically, the question at hand in this section is determining an appropriate wage level to lead, lag, or match in the context of external competitiveness.
BROADBANDING
Broadbanding is a pay structure that features fewer, wider bands than traditional pay structures. Broadbanding has developed in response to the evolution of flatter, less hierarchical corporate structures that emphasize teamwork.
Employers that want to implement broadbanding must ensure that their value systems and compensation objectives support this approach. Some questions to ask are:
1) What method will best support the strategies and business objectives of the organization?
2) Do cultural values encompass a broader view of work?
3) How ready is management for a new approach?
4) What other human resource or finance programs and plans will need to change as a result of a new approach to base pay?
DESIGNING A BROADBAND APPROACH
In general, the steps involved in designing a broadbanding program include the following:
Feasibility study - Companies with successful broadbanding systems conduct a feasibility study using project teams composed of members from line management and the finance and HR staffs. The questions that should be addressed in the feasibility study include the goal of making the change to broadbands, what or who is driving the initiative, whether or not the reason behind making a change is "right," the various approaches that should be considered, and the impact (if any) broadbands will have on incentive plans.
Program design - The design phase should answer the question such as how jobs and job families will be repositioned, whether career bands or wide bands will be used, if the bands should have control points or zones, how jobs will be slotted, and whether market data will be considered in slotting jobs.
Pilot testing - It is important to develop a comprehensive approach to system implementation. The use of a pilot group gives the employer a chance to test and “debug” its program before impacting on the employee population at large.
Implementation - Employers must determine how the broadbanding program will be implemented. Some implementation approaches include introducing the new program only to pilot jobs, to nonexempt or exempt employees, by department or division, or to all members of the workforce at one time.
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