External Competitiveness and Internal Alignment

External Competitiveness and Internal Alignment

External competitiveness policy in an organization refers to the dynamic system in which business functions against another organization offering the same service in an environment that is externally competitive while internal alignment policies are set of strategies and systems laid by an organization based on the worth of the organization (Bisceglia,2018). External competitiveness enables an organization to decide on how to pay its employees based on how similar organizations are paying their employees. Internal alignment compares job and skills level and how they are related to their pay among the employees of the same organization. In internal alignment, employee contributions to the organization are compared, and this creates competition within the members of the organization. As a result of internal alignment policy, employees are influenced to improve their skills in their field of specialization due to the internal competition among the employees. Internal alignment focus on pay relationships hence motivating employees to choose to increase their training, which affects the workforce and hence the efficiency of the organization. External competitiveness enables an organization to pay their employees in comparison to how other employees in other companies are paid. Factors that shape the external competitiveness of an organization include labor market factors, product market factors and also organizational factors. For instance, if the supply of a certain skill is high and the demand for such a particular talent is low, then that skill can be attracted and retained at lower pay, as compared to the situation when the supply is low, and the demand is high.  Also, if an organization is a monopoly, then the employees for such an organization can be retained at low compensation, as compared to a highly competitive market where very high compensation is required to retain the employees. The importance of external competitiveness in an organization is that it allows a business to combine strengths and opportunities to allow for growth while improving upon weak areas and eliminating threats arising from competitors hence making the organization to compete favorably in the market.

Pay Level and Pay Mix Decisions

Competition from external factors and labor market factors affect the pay level and pay mix decisions. Firms are always at risk of losing employees to competitors if the pay level remains below average. The competition in product markets leads to an attempt to reduce the cost of production, which could involve cutting workers’ pay (Ledford,2018). Reducing the level of payment in a market with competition for labor exposes a company to the risk of losing workers to competitors. The expenses involved in the operation of a firm are associated with compensation and employee pay. The level of pay has a great impact on the profits obtained. The fraction of profits foregone to improve workers’ pay can only be recovered by improving employer motivation to increase production. The efficiency wage theory predicts a level of payment that is above the market-clearing level. The main aim of using the efficiency wage is to ensure that the productivity of the firm is improved by motivating the workers to work more. The setback that comes with efficiency wage is that it leads to unemployment since companies decide to improve the working conditions of a few workers to improve productivity at the expense of employing more workers. On the other hand, the fairness wage advocates for equality in the setting of wage levels. Fairness wages advocate for a transparent representation of wage allocation to ensure that the wages given to workers give a clear representation of the productivity by the various workers. The fairness wage takes into consideration, the legal requirements that might fail to make sense in the process of making profits by a company. For example, the Government might set minimum wage levels, which end up being unfair to the company. The company, however, has the responsibility of reconciling the minimum requirements by the government and the companies reasonable wage level to come up with a wage level that considers the comfort of all the parties involved.