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Why must a firm watch the salaries paid by its competitors?
ABecause labor law fixes pay across a whole industry
BBecause appraisal ratings depend on competitor pay
CBecause benefits are always set by the local union
DBecause paying less can cost the firm its best staff
Answer & Solution
Correct answer: D. Because paying less can cost the firm its best staff
1. Pay level is influenced from outside the firm as well as from inside it.
2. If competitors pay higher wages, a firm risks losing its best employees to them.
3. That is why human resource professionals evaluate salaries by geography, job position, and competitor and market rates.
4. Appraisal ratings measure individual performance and are not derived from competitor pay, so option B is unrelated.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 8 "Managing Human Resources and Labor Relations", section 8.6 Employee Compensation and Benefits_
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