Top Shelf, Inc. is considering making changes in its pay levels. Benchmarking has confirmed that other companies in the same industry are paying higher wages with different bonus structures. What should the managers at Top Shelf consider before deciding to change the pay levels?

Question

What will be an ideal response?

Answer 1

Although high wages raise costs, they also help to ensure that an organization is going to be able to recruit, select, and retain high performers. Low wages give an organization a cost advantage but may undermine the organization's ability to select and recruit high performers and to motivate current employees to perform at a high level. Either of these situations may lead to inferior quality or inadequate customer service. In determining pay levels, managers should consider their organization's strategy. A high pay level may prohibit managers from effectively pursuing a low-cost strategy. But a high pay level may be worth the added costs in an organization whose competitive advantage lies in superior quality and excellent customer service.