Business Finance
Strategy Analysis ( Employee and labor relation class)

Question Description

I’m trying to learn for my Business class and I’m stuck. Can you help?

Assess the circumstances when it would be more appropriate for an organization to follow the comparative norm strategy to determine an employees' wage rate, versus the ability-to-pay or the cost of living strategy.

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Final Answer

It might be more suitable for a company to use the comparative norm strategy in circumstances
where the market is even with comparable organizations or the company itself is
separated into separate entities. In order for a business to be competitive in
a big city where choices for a given product are much higher than in countryside
or small communities, they need to make salaries and benefits competitive. In
these spaces, companies with the highest wages and benefits will appeal the
most qualified job applicants. Good employees can make a big difference in
company income. Using ability to pay events in this environment would likely
cause the loss of well capable employees which subsequently causes a damage in
customers and a loss of incomes. While using the cost-of-living strategy is a
good method to keep good employees, it can make a company fewer competitive in
a market where other businesses can get away with paying their staffs less. By
using the comparative norm strategy, businesses retain employees because there
isn’t a huge motivation for switching positions to another business with
similar salaries and benefits.
In cases where a big company is divided into separate entities perhaps
over a large physical area, like in different countries or even countries,
using the comparative norm allows the business to base production costs on the
demographic of a precise location rather than its ability to wage or the cost
of living in that place. The ability to pay may be an indicator of gains and
losses for the business, but since large businesses spread their assets over
all locations, it is not a good pointer of sustainability or success. For
example, big box stores such as Wal-Mart or Pier 1 will “carry” a store position
in a small town with the incomes of a store in a larger town. If the employees
of the small city store make as much as the ones in the superior town based on
the company’s ability to pay, the business could record lower success. On the
other hand, if employees in the reduced demographic are paid comparable to
other big box supplies in the area, the employees have little to lose from employed
there and the business can gauge the sustainability of that store over the longstanding
based on its competitors. While the ability to wage can help a failing business
stay afloat, and cost-of-living strategies make for happier staffs, using the
comparable norm plan can assure more long-term sustainability and income for the

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