Human Resource Economics - Term Paper Example

The competition is of two kind; internal and external.  In the internal competition employees compete against each others to get promoted or rewarded. This factor was studied and explained by Lazear and Rosen (1981) in their Tournament Theory. As in any tournament here, an employee wins the reward or gets promoted because his performance is better than others in their current level. Tournament theory is one of the approaches to the payments made toe, executives. There are several factors of which impacts the payments to the employees.

  These are the supply of the skilled or required workforce in the market, the demand of the workforce, average industry pay package, industrial growth, monetary policies, business cycle, organization growth, and many other micros and macroeconomic factors. In any given scenario, two executives struggle and work for better compensation and rewards for their works. This difference in distribution, according to Feinberg, is based on the five factors of equality, need, merit and achievement, contribution or “due return”, and effort.

  As in a tournament marginal difference, of efforts changes the rewards one gets in the business environment people at same rank often face a similar situation. Even if a company pays same to the employees to justify the raise or promotion one has to work hard for that. In the tournament model performance and payment are directly promotional to each other. It explains the motivation and productivity of workers along with the payment or growth perspective. As in the case of any sport or race where the marginal difference in the performance of an athlete can turn the silver to gold or bronze to no medal at all.

The same thing is applicable in the case of people working in any organisation. The promotions or raise in the salaries are linked with the performance. In a broad framework tournament model it does not include certain important points like performance of new employee, performance of people at the optimum level of the organisation.