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employer setting pay levels to lead, match, or lag the market

Under what conditions should an employer consider setting pay levels to lead, match, or lag the market? How does the mix of pay forms affect external competitiveness? Share at least one example of a company that follows a lead or lag policy and evaluate the reasons why this makes sense for this organization.

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Under what conditions should an employer consider setting pay levels to lead, match, or lag the market?

Employers make decisions regarding pay structures based upon external competitiveness. External competitiveness refers to pay relationships among organizations - an organization's pay relative to its competitors. In addition to external competitiveness, employers also take into consideration 3 different compensation equity issues: individual equity, internal equity and external equity.

1. Individual equity is a comparison between workers that do the same job for the same company and the determination of if it is fair. For example: a factory has 2 floor supervisors, if they are paid the same, is that perceived as being fair or if they are paid differently, is the pay difference perceived as being fair?

2. Internal equity is a comparison of different jobs within the same company and the determination of if it is fair. For example: a factory has a floor supervisor and a production line supervisor, if they are paid the same, is that perceived as being fair or if they are paid differently, is the pay difference perceived as being fair?

3. External ...

Solution Summary

This solution discusses the conditions where an employer should consider setting pay levels to lead, match or lag the market.

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