Example: A well-known company within the country, with its main business in the R&D, production, and marketing of telephone program-controlled switches and related products, clearly proposed during its early development stage and for a considerable period thereafter that its employees should receive income equivalent to those working in foreign enterprises or even abroad. In practice, the high-salary policy helped the company attract a large number of creative talents, which played a crucial role in allowing the company to compete with similar foreign enterprises in the product market. To support the company's rapid growth, it implemented a talent strategy by hiring talents in large quantities from various universities at high salaries. More strikingly, it hired all students of a certain major from a particular university, causing a temporary shortage of such talents in society. Simultaneously, to strike against competitors, it dispatched headhunters to poach core talents from rivals, causing competitors to fear the "wolf" tactics. There are even rumors that they openly set up recruitment booths outside competitors' premises, forcing some companies to announce holidays upon hearing of their recruitment efforts.
There are three types of compensation strategies: market-leading, market-following, and market-lagging. This means setting salary levels either above the market average, equal to it, or slightly below it. When determining salary levels, there is dual pressure from external labor markets and product markets. The labor market determines the minimum salary level, while the product market determines the maximum salary level. If the salary is lower than the labor market level, it will be difficult to hire people, and if it exceeds the level that the product market can bear, it will result in losses.
When companies determine salary levels, they usually adopt different salary strategies based on job categories or employee categories rather than applying the same salary level across all jobs and employees. For example, some companies use different salary strategies for different job families, adopting a market-leading compensation strategy for core job families and a market-following or relatively lagging base salary strategy for other job families. That is, offering salaries higher than the market level for key personnel such as senior management and technical staff, implementing a matching compensation policy for regular employees, and providing salaries lower than market prices for those who can easily be replaced in the labor market.
Companies that adopt a market-leading compensation strategy often have these characteristics: higher return on investment, lower proportion of salary costs in total operating costs, fewer competitors in the product market. First, companies with high return on investment can offer higher salaries to employees because they often have more funds and corresponding capabilities, so they won't face cash flow problems due to high employee salaries. Additionally, this approach can enhance the organization's ability to attract and retain high-quality human resources and offset recruitment costs such as advertising fees, recruitment costs, interviewee salary expenses, and employee turnover costs. Second, when salary costs account for a low proportion of total company costs, salary expenditures are actually a relatively less important item in corporate cost outlays. In such cases, companies may be willing to offer high salaries to reduce various related labor issues and focus more energy on matters more important and valuable than controlling salary costs. Finally, having fewer competitors in the product market generally means that the demand curve for the company's products or services has low elasticity or is even inelastic. Companies can raise product prices without worrying about consumers reducing consumption of their products or services. In other words, companies can pass on higher salary costs to consumers by raising product prices. In such cases, paying higher salaries naturally becomes feasible.
In China, some large multinational corporations have become famous both domestically and internationally for their market-leading compensation practices. Of course, companies that take the lead in compensation are not just doing it for show; they hope to gain corresponding benefits from their high-cost expenditures, gaining competitive advantages for the company and thereby impacting competitors:
1. Impacting Competitors Through Market-Leading Compensation in Talent Competition
High-level salaries can quickly attract a large number of candidates for the company, allowing it to obtain the necessary talents in a short time and solve urgent personnel needs. It also enables the company to raise recruitment standards and improve the quality of employees it can recruit and employ. High salaries can also attract employees working for competitors to work for them. As seen in the aforementioned example, it can even recruit all students of a certain major from a university, causing a shortage of such backup talents in society, creating a gap in competitors' talent pipelines, and achieving the goal of monopolizing talent to monopolize the market. In the high-tech industry, talents, especially R&D talents, are very important. Markets and products change rapidly, and if one cannot keep up with the pace of market advancement, they may soon be eliminated. Therefore, possessing talent means having a competitive advantage. In Shenzhen, many examples of competing for talent can be seen in media advertisements offering high salaries for certain positions or having headhunting companies directly recruit desired personnel from competitor companies.
2. Impacting Competitors Through Market-Leading Compensation in Product Pricing
In product costs, labor costs account for a significant proportion, especially in high-tech enterprises where labor costs often occupy a high percentage. Under fixed product prices, costs have an upper limit and limited room for increase. Similarly, if costs are fixed, the space for price reduction is also limited. The lower limit of compensation is determined by the labor market; it's impossible to hire people below the labor market level. If compensation levels are raised in the labor market, it will inevitably increase the company's labor costs, further limiting the space for price reductions. For example, if one’s own costs are lower than competitors and there are few market competitors, increasing the labor market level for a certain type of personnel in a specific region will inevitably raise the cost of certain products. When competitors have very limited room to reduce product prices, they will definitely be at a disadvantage in price wars.
Additionally, leading in compensation does not necessarily burden human resource costs. High salaries can attract many excellent talents, saving costs in recruitment promotion and talent cultivation. The reduced costs in this area might even exceed the increased portion of salaries. However, for competitors, not only will they have to increase salary costs to retain talent, but they will also see a significant rise in recruitment and talent loss costs.
3. Impacting Competitor Morale Through Market-Leading Compensation
Compensation in companies is often a very sensitive topic. Employees not only care about internal fairness but also external fairness. They compare not only similar positions within the company but also with similar positions in society. If they feel unfairness, morale will be severely affected, leading to negative attitudes towards work tasks or choosing to leave, and even retaliating by damaging company finances. In Zhongshan, a manufacturing company had two mold workers who, dissatisfied with the company's salary adjustment, did no work for nearly a month. Another company experienced a long strike due to low wages, causing significant losses and harming the company's reputation in society. In the mentioned example, the company set up recruitment booths outside competitors’ premises with clear pricing, not only seeking people but also informing the other party's employees that their positions deserve higher pay than what they currently receive. Even if no one is recruited, it leaves the impression among competitors' employees that their current wages are too low. At this point, the company either raises salaries for these employees, which increases costs and disrupts the company's salary structure, leading to overall human resource cost increases; or refuses to raise salaries, which would lower employee morale and negatively impact normal operations. Thus, through a market-leading compensation strategy, it is often possible to achieve the effect of subduing the enemy without fighting.
It is worth noting that companies with market-leading compensation often face significant management pressures. This is because, despite recruiting many capable employees with high salaries, if the company cannot achieve a high level of profit and convert high input into high returns, high salaries become a burden rather than a cost advantage, giving competitors opportunities to exploit weaknesses.
This article comes from: New Theory of the Wooden Bucket and Team Building_5898-www.zp-nmg.com, Why Nokia Will Soon Disappear_7799-www.zp-nmg.com, Working at KPMG in Hong Kong for Three Months_6519-www.zp-nmg.com