Organization Salary Determinations

LABOR MARKET

A consideration that's always present in salary level determination is the ability of the organization to obtain and hold an adequate workforce. The salary level must be sufficient to perform this function or the organization cannot operate.

Possible considerations in salary level decisions include:

• effectiveness of recruitment efforts
• rejected employment offers
• labor turnover levels

The salary level is only one determinant of recruitment effectiveness and labor turnover. But it's usually agreed to be the major element in job choice.

Skill Shortages

Some organizations experience serious shortages of certain skills.

In the face of such shortages, organizations may feel that they have no choice but to raise salaries to attract the needed skills.

Q: What if the organization doesn't experience any recruitment or turnover problems?

A: The organization may presume that the present salary level is adequate to permit securing and holding a workforce.

But quality issues require answers.

• Is the quality of the workforce being maintained, or have employees of low to average performance been the only ones available at the present salaries?
• Is the quality of the present workforce adequate? Is it more than adequate?
• Is a change in setting higher talent standards necessary? Can such a change be accomplished at present pay levels?

Such questions emphasize the point that it may be more important to maintain the quality of a workforce than the quantity.

Let's take a look…

A workforce of low to average performers at a given salary level may be more costly to the organization than a workforce of higher quality obtained at a higher salary level but resulting in lower unit labor costs. Employers should look for ways to lower unit labor costs by raising the salary level and standards of employability.

This approach partially explains the existence of companies with an explicit strategy to pay above market.

Salary Leaders

Organizations that pay "on the high side" may do so in the hope of attracting a higher-quality workforce.

Salary leadership may not only permit "skimming the cream" off the present workforce, it may ensure a consistent high-quality pool of candidates. Some companies always have a waiting list of applicants, whereas others must continually use an aggressive recruitment program.

Labor-market studies have consistently shown that most employees find jobs by:

• applying directly

• AND

• through referals.

Such practices work to the advantage of those firms known as high-paying organizations.