There are many contextual influences that must be taken into ...

[mckennatimberlake]

There are many contextual influences that must be taken into account when designing and implementing direct financial compensation plans, and one of them is interindustry wage or compensation differentials.
 
  Briefly, state the implications of these differentials for establishing competitive compensation programs. Then, explain the factors that contribute to the existence of interindustry wage differentials.

Question 2

Factors that must be taken into account when building compensation systems include the labor market, labor unions, interindustry wage differentials, the economy, and legislation.
 
  Indicate whether this statement is true or false.

[olderstudent]

Answer to Question 1

Answer: In competitive labor markets, companies attempt to attract and retain the best individuals for employment partly by offering lucrative wage and benefits packages. Indeed, there are differences in wages across industries. These differences are known as interindustry wage or compensation differentials. Interindustry differentials can be attributed to a number of factors, including the industry's product market, the degree of capital intensity, the profitability of the industry, unionization, and gender mix of the workforce. Companies that operate in product markets in which there is relatively little competition from other companies tend to pay higher wages because these companies exhibit substantial profits. This phenomenon can be attributed to such factors as higher barriers to entry into the product market and an insignificant influence of foreign competition. Government regulation and extremely expensive equipment represent entry barriers in such industries as in mining. Capital intensity also explains pay differentials between industries. The amount of average pay varies with the degree of capital intensity. On average, capital-intensive industries such as construction pay more than industries that are less capital intensive such as retail. Capital-intensive businesses require highly capable employees who have the aptitude to learn how to use complex technology.

Answer to Question 2

Answer: TRUE