TO LEAD, LAG, OR MATCH - ESTIMATING THE FINANCIAL IMPACT OF PAY LEVELPOLICIES

In this study, the Boudreau and Berger (1985a) retention/acquisition m odel is modified in order to develop a utility model that can be used to assess the impact of alternative pay level policies. This paper the n demonstrates how the model could be used to assess the financial imp act of alternative pay level policies for an organization whose curren t policy is to match the market. In demonstrating this, estimates of t he effect of pay level on employee and applicant behaviors are present ed. The utility model is then used to translate these effects into fin ancial terms and compare them against the wage costs associated with a lternative pay level policies. Finally, break-even analysis is used to suggest how decision makers might use utility results when making dec isions about pay level policy. The implications for pay level policy a nd the role of utility analysis in compensation decision making are di scussed.