Answer to Question 1
Answer: A company can choose from three pay level policies: 1) market lead, 2) market lag, or 3) market match. The market lead policy will compensate employees more highly than its competitors. Conversely, a market lag policy will compensate employees less than competitors do. The market match policy follows typical market rates.
Companies pursuing a differentiation strategy will opt for a market lead or market match policy. The market lead policy can be used to attract the very best employees to promote its competitive strategy. For less labor-intensive industries, a market match policy will suffice because funds can be used for capital needs. Companies pursuing a lowest cost strategy would more likely adopt a market lag policy. Companies can realize cost savings by paying less than the market pay line. However, these firms may have difficulty attracting and retaining highly qualified employees. Typically, companies will use more than one pay policy simultaneously.
Answer to Question 2
Answer: lag
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