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Market Competitiveness

Essay by   •  August 15, 2011  •  Research Paper  •  1,181 Words (5 Pages)  •  3,350 Views

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Abstract

Employees receive compensation from a company in return for work performed. While most people think compensation and pay are the same, the fact is that compensation is much more than just the monetary rewards provided by an employer. Market competitiveness in relation to an organization's pay system means implementation of a compensation system that is competitive with pay systems of peer companies or other organizations in the industry. There are specific ideas such as skill-based pay, pay based on performance, and broadbanding which are designed to help offset compensation costs by gains in productivity, and to develop more flexible workforces for the companies that lack financial resources.

Market Competitiveness

Employees receive compensation from a company in return for work performed. While most people think compensation and pay are the same, the fact is that compensation is much more than just the monetary rewards provided by an employer. Market competitiveness in relation to an organization's pay system means implementation of a compensation system that is competitive with pay systems of peer companies or other organizations in the industry. In other words, the company's pay should be inline with the ongoing trends/pay level in the industry. If the compensation will be lower than competitor's or peer's salary offerings, it will be difficult for the organization to attract and retain best talents in the industry.

Market competitiveness in terms of pay system has become extremely important today because human resources are an important asset and source of competitive advantage for an organization. All companies compete with each other in terms of attracting the best talent in the industry. Hence, organizations that cannot afford to pay market competitive salaries are often unable to attract and retain best talents. Companies are now using compensation methods such as skill-based pay, pay based on performance, and broadbanding to retain market competitiveness despite a lack of financial resources.

Salary is perhaps the main criteria of accepting or declining a job offer. So it is important that the employer offers a competitive salary to the candidate. The data obtained from salary surveys helps organizations design and manage their compensation structure so that there is internal consistency and at the same time it is at par with the industry standards. In addition to knowing the market rates employers also get an idea of what its competitors are paying. In the process of negotiating salary with any candidate the concerned HR professional knows exactly to what limit he can stretch.

By setting the right compensation package, organizations will have that competitive advantage and employees will be attracted, retained and motivated to work in such a workplace.

Even for existing employees, it is important that organizations keep a close tab on the competitive salaries paid by other organizations in their peer group, so that they are able to retain their best employees and competitors are unable to hire their top employees. Market competitiveness in salary structure keeps motivation level of employees higher and enhances their job satisfaction, thereby benefitting the organization.

An organization's compensation practices can have far-reaching effects on its competitive advantage. "To develop a competitive advantage in a global economy, the compensation program of the organization must support totally the strategic plans and actions of the organization"(Henderson, 2003, pg. 124). Labor costs greatly affect competitive advantage because they represent a large portion of a company's operating budget. By effectively controlling these costs, a firm can achieve cost leadership. The impact of labor costs on competitive advantage is particularly strong in service and other labor-intensive organizations, where employers spend between 40 and 80 cents of each revenue dollar on such

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