Six dangerous myths about pay
What are the Myths?
What is your answer?
Q: Consider two groups of Steel minimills. One group pays an average hourly wage of $18.07. The second pays an average of $21.52 an hour.
Assuming that other direct employment costs, such as benefits, are the same for the two groups, which group has the higher labor costs?
Myth#1:
Labor rates and labor costs are the same thing.
The second set of mills could have raised workers' pay rate by 19% and still bad lower labor costs. Labor Rates VS Labor Costs
Productivity
Myth#2:
Managers can cut labor costs by cutting labor rates. eg: I may replace my $2,ooo-a-week engineers with ones that earn $500 a week, but my costs may skyrocket because the new, lower-paid employees are inexperienced, slow, and less capable. In that case, I would have increased my costs by cutting my rates.
Myth#3:
That labor costs are a significant portion of total costs.
Sometimes, that's true, such as accounting and consulting firms.
But the ratio of labor costs to total costs varies widely in different industries and companies.
And even where it is true, it's not as important as many managers believe.
Myth#4:
Low labor costs are a potent competitive strategy
Those who believe this myth may neglect other, more effective ways of competing, such as through quality, service, delivery, and innovation.
In reality, low labor costs are a slippery way to compete and perhaps the least sustainable competitive advantage there is.
What is your answer?
Q: An airline is seeking to compete in the low-cost, low-frills segment of the U.S. market where, for obvious reasons, labor productivity and efficiency are crucial for competitive success.
The company pays virtually no one on the basis of individual merit or performance. Does it stand a chance of success?
Myth#5:
The most effective way to motivate people to work productively is through individual incentive compensation.
Southwest Airlines
It has never used such a system, and it is the cost
What is your answer?
Q: Consider two groups of Steel minimills. One group pays an average hourly wage of $18.07. The second pays an average of $21.52 an hour.
Assuming that other direct employment costs, such as benefits, are the same for the two groups, which group has the higher labor costs?
Myth#1:
Labor rates and labor costs are the same thing.
The second set of mills could have raised workers' pay rate by 19% and still bad lower labor costs. Labor Rates VS Labor Costs
Productivity
Myth#2:
Managers can cut labor costs by cutting labor rates. eg: I may replace my $2,ooo-a-week engineers with ones that earn $500 a week, but my costs may skyrocket because the new, lower-paid employees are inexperienced, slow, and less capable. In that case, I would have increased my costs by cutting my rates.
Myth#3:
That labor costs are a significant portion of total costs.
Sometimes, that's true, such as accounting and consulting firms.
But the ratio of labor costs to total costs varies widely in different industries and companies.
And even where it is true, it's not as important as many managers believe.
Myth#4:
Low labor costs are a potent competitive strategy
Those who believe this myth may neglect other, more effective ways of competing, such as through quality, service, delivery, and innovation.
In reality, low labor costs are a slippery way to compete and perhaps the least sustainable competitive advantage there is.
What is your answer?
Q: An airline is seeking to compete in the low-cost, low-frills segment of the U.S. market where, for obvious reasons, labor productivity and efficiency are crucial for competitive success.
The company pays virtually no one on the basis of individual merit or performance. Does it stand a chance of success?
Myth#5:
The most effective way to motivate people to work productively is through individual incentive compensation.
Southwest Airlines
It has never used such a system, and it is the cost