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    SIX Dangerous Myths About Pay: by Jeffrey Pfeffer

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    Fun Toosh345
    Managers often fall for six dangerous myths about pay: (1) that labor rates and costs are the same, (2) cutting labor rates will attract better employees, (3) labor costs are a major part of total costs, (4) lower labor rates are a competitive strategy, (5) individual incentives are the most efficient way to motivate workers, and (6) employees primarily work for money. However, higher labor rates can lead to higher productivity, cutting rates attracts less skilled workers, labor costs vary significantly by industry, quality and innovation are better competitive strategies than costs, and non-monetary benefits are important motivators. Managers should focus on actual labor costs rather than wages and the collective needs of

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    SIX Dangerous Myths About Pay: by Jeffrey Pfeffer

    Uploaded by

    Fun Toosh345
    56 views16 pages
    Managers often fall for six dangerous myths about pay: (1) that labor rates and costs are the same, (2) cutting labor rates will attract better employees, (3) labor costs are a major part of total costs, (4) lower labor rates are a competitive strategy, (5) individual incentives are the most efficient way to motivate workers, and (6) employees primarily work for money. However, higher labor rates can lead to higher productivity, cutting rates attracts less skilled workers, labor costs vary significantly by industry, quality and innovation are better competitive strategies than costs, and non-monetary benefits are important motivators. Managers should focus on actual labor costs rather than wages and the collective needs of

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    Managers often fall for six dangerous myths about pay: (1) that labor rates and costs are the same, (2) cutting labor rates will attract better employees, (3) labor costs are a major part of total costs, (4) lower labor rates are a competitive strategy, (5) individual incentives are the most efficient way to motivate workers, and (6) employees primarily work for money. However, higher labor rates can lead to higher productivity, cutting rates attracts less skilled workers, labor costs vary significantly by industry, quality and innovation are better competitive strategies than costs, and non-monetary benefits are important motivators. Managers should focus on actual labor costs rather than wages and the collective needs of

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    © All Rights Reserved
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    56 views16 pages

    SIX Dangerous Myths About Pay: by Jeffrey Pfeffer

    Uploaded by

    Fun Toosh345
    Managers often fall for six dangerous myths about pay: (1) that labor rates and costs are the same, (2) cutting labor rates will attract better employees, (3) labor costs are a major part of total costs, (4) lower labor rates are a competitive strategy, (5) individual incentives are the most efficient way to motivate workers, and (6) employees primarily work for money. However, higher labor rates can lead to higher productivity, cutting rates attracts less skilled workers, labor costs vary significantly by industry, quality and innovation are better competitive strategies than costs, and non-monetary benefits are important motivators. Managers should focus on actual labor costs rather than wages and the collective needs of

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 16

    SIX dangerous Myths about Pay • Amit Sahgal MBA19173

    By Jeffrey Pfeffer • Analjeet Singh MBA19174


    • Anshul Pandey MBA19176
    • Pankaj Singh MBA19207
    • Vivek Kedia MBA19244
    That the labour rates and costs are the
    same

    2
    The Fact

    Higher labor rates lead to higher productivity which may very well exceed the
    extra you are paying in labor.
    As evident in the steel mill example
    Cutting on labour costs through cutting
    labour rates

    4
    The Fact

    Cutting the labour rates will attract less experienced, slow and less
    capable employees.
    This will lead to loss in rate of production intermingled with lower
    quality of production, therefore managers employing the cut on
    labour rates might end up costing the firm more that they may save.
    Labour costs are a significant part of total
    cost

    6
    The Fact

    This is a mixed bag, where some sectors do see their major capital
    employed in hiring labour. Example- accounting and consulting firms
    Generally for other sectors the ratio of labour cost to total cost
    varies significantly, and it should be treated as such.
    On the other hand the average manager will tend to focus much
    more on labour costs than is required.
    Lower labour rates are potentially a
    competitive strategy

    8
    The Fact

    Myth 3 evolves into myth 4 which leads them to believe that just the labour
    cost could be counted as a potent strategy.
    In reality this obsession with labour wages leads to more important things
    being neglected, such as:
    QUALITY SERVICE DELIVERY INNOVATION
    any of which could be ground for competitive strategy
    Individual incentive is most efficient of
    ways to motivate a worker

    10
    The Fact

    The basis to a more effective motivation is by offering intellectually


    engaging work, family friendly environment, non monetary benefits,
    better work environment by choosing fun, interesting and smart people
    to work with the best-in-class equipment.
    This would lead to lower employee turnover rate and will produce
    highly motivated employees which could not be done by just the
    monetary incentives.
    Employees’ primary objective for working is
    the money they earn

    12
    The Fact

    This Myth while an extension of the previous focuses more on the


    belief that the compensation which employees get in the form of
    monetary is more valued by them than any other.
    This has been systematically proven wrong by the software company
    SAS which focused instead on the other forms of benefits they could
    offer. They had the lowest turnover rate in the industry.
    • The semantic difference in labour wage and

    How do
    labour cost (to company) is often neglected
    • The further myths (first to fourth) stem from this
    belief, that these two terms are one and the

    managers
    same
    • Some managers find it easier to control labour
    wages hence this will look good on paper as

    keep falling
    labour wages are in focus of others as well
    • The labour wages are easily controllable than
    other actual factors on production like

    for these
    manufacturing processes, changing the
    company’s culture, or changing the product’s
    design
    • Agency theory: difference in perspectives of the

    myths owners of the business and those who manage


    it; leads to pursue of personal interest rather
    than the organization's

    14
    • Only labour costs to the firm and not the labour
    wages are of significance in total costs
    • To avoid laying too much emphasis on individual
    incentivization the fact in the words of Herbert
    Simon might help: “people in organizations are
    interdependent, the organization’s results are a

    Avoid, but consequence of collective behavior and


    performance. Therefore individual contributions are
    not easily and reliably measured, nor necessary as
    individuals can never enter the markets and

    how?
    compete”
    • The more incentives you provide, more is the
    money coming out of others’ pockets which goes
    against the collective synergies needed by the
    organization to succeed
    • The fact that if a culture, where people work only
    for the money offered, is propagated, they will
    keep switching over to the max. offering by other
    companies

    15
    Thanks!
    Any
    questions?

    16

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