Essay on "Human Resources Companies That Pursue a Low-Cost"

Essay 4 pages (1312 words) Sources: 2 Style: APA

[EXCERPT] . . . .

Human Resources

Companies that pursue a low-cost strategy tend to apply that strategy throughout the organization. Therefore, the most likely compensation mix is weighted heavily towards the intrinsic compensation.

The pursuit of a low-cost strategy implies that a company is attempting to be the absolute lowest-cost competitor, rather than being merely a low-cost competitor. The latter would not represent a source of competitive advantage. To achieve the position as the lowest-cost competitor in an industry requires complete organizational buy-in. Costs must be trimmed in every way possible, especially when other firms in the same industry are attempting to utilize the same strategy. As a result, the extrinsic compensation (pay) in such organizations is often in line with or lower than the industry standards. Executives in such companies must be willing to take such salaries, if for no other reason than as a demonstration of their commitment to cost reduction. This holds true even at the highest levels, because the organizational culture permeates from the top down, and successful adoption of a low-cost strategy requires low-cost pursuit to be an integral part of the corporate culture.

In situations where extrinsic compensation is relatively low, there must be offsetting intrinsic compensation. Such intrinsic rewards can be, for example, the sense of belonging to the industry leader. Further, the recognition that one will receive at later career stages for successful contribution to cost leadership is another strong intrinsic reward. Companies pursuing a lowest-cost strategy require top talent, to find creative ways to reduce costs. Without offering unusual extrinsic rewards, the firm must therefore offer a strong package of intrinsic rewards. Achieving difficult tasks such as reducing costs at a firm that is already a cost leader can constitute a high level of intrinsic reward. Indeed, lowest-cost companies that do not offer such rewards may find it difficult to attract key talent even with higher extrinsic packages.

2) One of the most controversial topics in human resources is the concept of the minimum wage. Proponents of minimum wage increases cite the cost of living and the need for a "living wage." Opponents cite declines in employment.

Both claims are somewhat spurious. Studies have shown that employment does not decline when the minimum wage is increase (Card & Krueger, 1997). On average, businesses make no significant changes as a result of increasing the minimum wage; although they may pass the costs onto their customers. This is in part because such companies are already operating at high levels of efficiency, since they are typically adopting lowest-cost strategies, and the minimum wage affects all competitors equally.

Proponents of raising the minimum wage would suggest that this means a living wage can be offered. However, there is little consensus on what constitutes a living wage. Moreover, raising the minimum wage will reduce the incentive for higher education, which produces a net drag on the economy. Another consideration is that minimum wage is not intended as a living wage; minimum wage earners are typically workers transitioning into the workforce, such as students and new immigrants. After a time at the minimum, these workers move on the better things, to be replaced by new transitioning workers.

The minimum wage currently sits, at the federal level, at $6.55. It will increase to $7.25 in July. States have the right to set higher minimum wages, and many states with higher-than-average living costs do just that. The increase to $7.25 is sufficient. This represents a jump of over 10%. At some point, the hypothesis that minimum wage increases will not reduce employment will no longer hold. Therefore, I believe the coming $0.70 increase to be sufficient. A living wage is not the objective of the minimum wage; there are few other arguments that could justify increasing costs, given that lower wages provide incentive to workers to acquire the education and training needed to improve their lot.

3) the Medicare Prescription Drug Improvement and Modernization Act of 2003 was designed… READ MORE

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