Competitive and Institutional Theories

 Competitive Market Theories.

The assumption here is that individuals choose jobs which offer them maximum benefits. (...) The outcome of this process is a dynamic and shifting equilibrium in which both employees and organizations compete to maximize benefits for themselves. (...) In reality, it is obvious that the job market does not work in such a simple fashion: people do not move readily between organizations in search of higher wages; most firms do not cut benefits when unemployment levels are high and cheaper workers are available.

  How does the profit-sharing scheme introduced by American Express fit with this theory? See: American Express extends bonuses and stock plans to all staff on the HRM Guide Canada site.

  "In an increasingly tight labour market, compensation is a critical lever for organizations as they strive to attract, retain and motivate talented employees," said Prem Benimadhu, Vice-President with the Conference Board. See: Stock options have arrived in Canada also on the HRM Guide Canada site.

 Institutional Theories

An alternative approach places its main focus within the firm rather than the external job market.(...) Individual workers are less concerned with maximum benefits than achieving a fair rate compared to their peers. (...) Employers set wages for a variety of reasons ranging from profitability to  tradition - competition with other firms is a relatively minor consideration.  Institutional approaches have a greater affinity with 'soft' HRM (...) recognizing that group effects underlie notions of fairness and loyalty which are fundamental to the principle of commitment.

  You might like to consider how less obvious benefits such as 'wellness' programs fit into this kind of thinking: Measuring employee wellness on the HRM Guide Canada site.

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