Chapter 7: External Competitiveness Determining the Pay Level Your Turn: Sled Dog Software

Software engineers directly affect the success of many start-up companies. Suppose you are facing a clean slate: A group of investor is about to create a new start- up, a specialty software company based in Laramie, Wyoming. These investors have hired you to help them determine the marketing managers pay. What would you advise? Consider the information in Exhibits 7.3, Exhibits 7.4, and Exhibit 7.14 in making your recommendation. 1. What policy regarding external competitiveness would you advise? List the options and the pros and cons of each policy option offer the rational for your recommendation.

Why signaling and human capital? There is a huge risk in working for a start up as the likelihood of you waking up tomorrow jobless is high! And the technology industry is a very dynamic one. Therefore, the we are looking for a highly qualified person to market this start up, understand the market and target it, etc. End result, this person is responsible for bringing awareness to the technology which is how revenue will be generated. Bringing in a marketing manager at an early stage of a start up requires this person to be highly flexible to structural changes, changes in job description, risk averse, and willing in investment in themselves as this is a "trial and error" experiment. Definition the additional output associated with the employment of one additional human resource unit the additional revenue generated when the firm employs one additional unit of human resources Assumptions on behavior of potential employees Several job seekers Possess accurate information about all job openings No barriers exist to mobility among jobs if a job has negative characteristics, then an employer must offer higher wages to compensate for these negative features Pros Each employee contributes to a measured share of revenue Employees aren't a burden as they are generating revenue above break-even point As long as you have the money to pay, you will find employees, more people willing to take a job as pay increases Cons If employer is only focused on number(tangible output from performance) the perception is every new hire produces) less than previous hire Not always measurable If unemployment rates are low, offers of higher pay may not increase supply

Labor Demand-Marginal Product Marginal Revenue Labor Supply

Compensating Differentials

Net advantage for employees

Employment opportunity may go not to the most qualified candidates, but to less qualified ones that the negatives circumstance dont apply on

Efficiency Wage Theory

high wages may increase efficiency and actually lower labor costs if they attract higher-quality applicants

Lower turnover Increase worker effort Reduce shirking Reduce the need to supervise employees research results support the proposition that higher wages attract more qualified applicants

higher wages attract more unqualified applicants so an above market wage does not guarantee a more productive work force

Signaling

Reservation Wage

Human Capital

An employer designs pay levels and mix as part of a strategy to signal to potential and current employees the kinds of behaviors it expects. An employer may combine low base pay with high bonuses in hopes of attracting employees more willing to take risks job seekers have a reservation wage level below which they will not accept a job offer, regardless of the other job attributes, such as advancement potential or working conditions Higher earnings flow to those who improve their potential productivity by investing in themselves (by acquiring additional education, training, and experience

Job fit between job and personality

Policy of paying below the market for base pay yet offering generous bonuses or training opportunities doesn't suit senior level Disregards company's investment in intangible assets (e.g.: environment, culture, ..etc) A model that is only applicable to type A people

Due to the employee being in a job where they are satisfied with the pay, the likelihood of them resigning due to financial reasons is low. Paid at the value of their marginal product

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What forms of pay and in what percentages would you recommend? Again, offer your relations. I recommend going for Company B percentages, which is giving the employee a base that is close to the market's percentage. But give much higher perks which would make them feel authoritative and as a partner. It is important to tie their performance to the company's strategic objectives.

Exhibit 7.4, Two Companies: Same Total Compensation, Different Mixes Company A Company B Benefits16% Benefits, 17% Bonus0% Options 13% Options0% Bonus 6% Base 84% Base 64% Total Compensation = $112,349 3. Compensation = $112,748

Market Benefits 20% Options 7% Bonus 6% Base 67%

Consider the theories and research presented in this chapter. Which ones did you use to support your recommendation? With our case I would "Signaling" to attract qualified and risk averse people, preferably with a technology related background. Also, "Compensating Differentials" as it would help make the employee's life easier in order to be fully devoted to his/her work.

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List three pieces of additional information you would like to have to refine your recommendation. Explain how this information would help you. I would need to know the following: Exact qualifications for the requested Marketing Manager What are the negative characteristics of the job? Planned lifecycle for product, and company strategy Finally, would you physically locate all the actual software development in Laramie? What, if any, other options would you consider? Definitely not, there are states that are labeled as technology hubs like California and Texas.

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