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In the world of business, it is any company’s management strategy to define how profitable a company will be with regards to the economical use of resources. Human capital is one among the resources that companies prioritize in their operations, as it defines the possibilities that the company can pull off. However, as important as the human capital can be, rewarding it has never been a standardized approach. Many companies consider wage determinants to be variables rather than standards. For example, one of the major wage determinants under the ‘ability to pay’ criterion is the attraction of better workers. Companies regulate their wages with respect to the type of workers they require to realize their business objectives and goals. Most companies would compensate their employees with high salaries as a move to retain and attract highly qualified and experienced workers. This approach gives way to the second main consideration of competitiveness on wage programs. For a limited labor market, companies’ fishing for high-end workforce would raise their minimum wages to outshine their rivals – this attracts the target workforce to the best offer. Lastly, supply and demand for labor is a consideration that influences the company’s wage determination. For example, a large labor market would influence the company’s wage determination positively in that the company would offer low wages with regards to high supply of labor – cheap labor. On the other hand, low supply of labor would spike competition for the available labor, hence, requiring companies to increase their wages to attract the desired workforce (Douty, 1980).
The cost of labor to total cost ratio cannot be used as standard wage-determining formula in organizations because in practice there exist three types of organizations. Firstly, there are the highly profitable companies that use highly advanced technologies and minimum human capital. Applying this ratio would decapitate the employee’s psyche to work. Secondly, some companies assume seasonal high profits; hence, the application of the ratio would render the company and the employees’ objectives unsustainable. Lastly, low-profit companies set the wages at a low level in order to sustain their operations, otherwise the companies would operate on maximum loss (Dickinson, 1941).
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