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Leadership & Organizations

In a number of business books (respectively, Hellriegel, Jackson and Slocum, 1999, p. 500; Boone and Kurtz, 1999, p. 275; and Robbins, 2000, p. 442) leadership is a) influencing others to act toward the attainment of a goal; b) directing or inspiring people to attain organizational goals; c) the quality of leaders, which are individuals to facilitate the movement of a group of people toward a common goal.

Leadership is an influence process that demonstrates itself through power- the ability to influence the behavior of others (Futrell, 1998). There are several types of power including legitimate, reward, coercive, expert, and referent. Reward stems from the leader’s authority to bestow rewards on other people either formally, increasing pay or promoting, or informally, thus praising, paying attention to a person or recognizing person’s achievements (ibid.

). On the contrary coercive power of a leader suggests the leader’s authority to punish or recommend punishment in the form of reprimand, write-up or reduced chance for a raise (ibid. ). As far as no doubt in the bond of leadership and value (in terms of wages and benefits) arise let’s observe briefly the linking subject. Employee’s Value Employers compensate, in other terms evaluate their employees either with

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cash, or noncash payments, or both.

The noncash payments, sometimes called “in-kind” or “fringe” benefits, include those that are legally required and Government-provided, such as Social Security, workers’ compensation, and unemployment insurance, food stamps, public and subsidized housing, medicaid and medicare; and some that are not, such as paid leave, health and life insurance, and pensions. As far as monetary evaluation of an employee is concerned, the question is whether the wage rate objectively assess the individual’s contribution to the organizational performance.

Economists though take so much efforts to measure the non-cash evaluation of the staff. There are several approaches to estimating employee’s value. Perhaps the simplest one is that which holds value to be the employer’s cost of a given benefit. The more sophisticated funds-released approach maintains that value can be measured as the amount of money an individual would have spent to acquire a certain good in the absence of being provided the benefit associated with that good.

In contrast to this is the market-value approach, in which value is the amount the individual would have paid for the benefit if he or she had purchased the specific amount the employer provided (as opposed to the amount the individual would have chosen at the existing market price). Finally, there is the cash-equivalent approach, wherein value is the least amount of money an individual would be willing to accept in exchange for not receiving a certain benefit. An employee cash-equivalent value is discussed in the U. S. Bureau of Labor Statistics Research provided by Famulari & Manser.

The definition valuable for our research is the following: “When applied to an employer-provided benefit, the cash-equivalent [employee] value is the minimum amount of additional cash compensation the worker will accept in lieu of receiving the benefit”, or “the amount of cash compensation which makes the individual indifferent between getting the benefit and no cash and getting the cash and no benefit. ” (Famulari & Manser, 1989) Then we trace the correlation of employees’ value and employers’ cost on the U. S. Bureau of Labor Statistics data. Employer cost and employee value congruence

Any employer-provided benefits other than legally required ones are stated either directly (for unionized workers) or less directly (for nonunionized ones) in employer-employee contracts. In the absence of government intervention, taxes, and other institutional restrictions the employer has no economics-related motive to prefer one form of compensation over the other as far as both wages and noncash benefits cost the employer the same amount. “In a perfect world, entrepreneurs would be able to pay good wages, provide paid medical benefits to all employees and their dependents…

” discusses Griffin. However, “even with this country’s near-perfect economy, the world certainly isn’t perfect. One of the curses of an imperfect world is that what you see is not necessarily what you get, and what you want is not necessarily what’s best for you. ” (Griffin, 2001) The professionals from the U. S. Labor Department are oriented in their calculations on the marginal worker (“the last worker convinced by the total compensation package to accept the job” – Famulari & Manser). The value of the benefit provided is not the same as the cost of it for the employer in three major situations.

Firstly, if the benefit is not subject to personal income taxes then the employer may prefer to give the employee monetary reward than any other benefit. [ ] Specifically, in a world with taxes, the marginal worker would be expected to consume noncash benefits up to the point where the marginal value of another dollar of benefits equals the after-tax value of another dollar of money wages. That is, the marginal worker, whose marginal tax rate is, say, t, would need to receive 1/(1 – t) dollars of pre-tax income in order to get a dollar of after-tax income.

(The amount t/(1 – t) is paid in taxes, leaving [1/(1 – t)] – [t/(1 – t)] = one dollar. ) More of the benefit will be consumed than if this differential tax treatment did not exist, and as a result, employer cost will overstate the cash-equivalent value of the benefit. (Famulari & Manser) As a result, employees face the differential tax treatment: as far as higher income workers place a higher value on noncash benefits they pay higher tax rate not like lower income workers paying lower tax rates, thus placing lower value on non-monetary values.

If the benefit is provided uniformly to large groups of employees in a firm, which once used to derive from historical and legislation (of the U. S. ) background, employer cost doesn’t equate with employee value. Here is the direct correlation with the leadership qualities of an employee exist. It’s logical to assume that even when paying taxes at equal rates, higher skilled and evaluated workers would demand more of any “normal” good than would lower positioned thus lower income workers. […

] laws mandating that personal income tax advantages be available only for benefits which do not favor higher paid workers provide incentives for a more uniform provision of benefits to all employees in a firm. If there are costs associated with changing jobs and if employees are not perfect substitutes for one another in production, then uniform provision of benefits drives a wedge between employer cost and employee value for at least some individuals. (Famulari & Manser) The tendency is the employer would be expected to provide benefits in accordance with the preferences of the “median” worker.

To support this proposition, Steven A. Woodbury estimated an income elasticity for noncash benefits which is greater than one; that is, a 1-percent increase in income leads to a greater-than-1-percent increase in the demand for non-cash benefits. On the example of benefits whose provision does not typically vary with employee income – health insurance, child care, Christmas bonuses, and parking – the benefit ratio (“the ratio of employee value to employer cost” – Famulari & Manser) would be higher for higher income workers than for lower income workers in a firm.

On the opposite, for benefits which are provided in amounts proportional to income, such as life insurance and pensions, less of a difference in benefit ratios among workers would be expected. The employer cost and employee value vary, thirdly, when the employer’s marginal cost of providing the benefit is lower than the market price of the benefit to the employee. Taxes and provision of benefits being equal, the benefit will be “overprovided” compared to the amount chosen by the employee at the market price.

“Thus, employer cost will provide a lower bound on employee value, and the amount provided by the employer times the price the employee would pay in the market will provide an upper bound” – drive the bottom line the researchers quoted. There are three situations when the cost (of the benefit) to the employer would be less than the purchase price to the employee. One type occurs when employers “take advantage of discounts sellers offer for bulk purchases”, (Famulari & Manser).

This would happen, secondly, due to the willingness of sellers to provide benefits to groups of people at a cheaper rate than to individuals. Then would arise “adverse selection problems” when, for example, “the workers in the poorest health are the ones who want to purchase the most health insurance”. Finally, employers may prefer providing more of a given type of benefit than is demanded in order to reduce turnover, maintain a healthier and more productive work force, or attain another, similar objective.

“Here, a more inclusive measure of employer cost – one which ‘nets out’ the gain accruing to the firm in providing the benefit – would result in an employer cost that is less than the market price. ” (ibid. ) There is a difference when estimating legally required and nonrequired employer-provided benefits. In the latter case both sides are free to negotiate about amounts of the benefits, the higher is the leadership potential, the better are the chances. While the employer provide with legally required benefits all the employees obligatory and uniformly, disregarding their leadership position.

To say more, in some industries or firms, as we’ll discuss it further, such Government granted benefits, e. g. unemployment insurance and workers’ compensation being not fully experience rated, have a relatively higher value on them than for the workers in other industries. To nut-shell the assumptions about the value congruence, due to the space limitations we name just a few measurement instruments for the cash-equivalent value of the benefit which are utility-based estimates, survey and the hedonic approach.

A number of methodological problems arise, but the general ratios can be driven. – Employer cost is limited as a measure of employee value except the purposes, however, when employer cost is used to proxy the median worker’s value of non-legally required benefits. The statisticians find it adequate to use this approximation along with an estimate of after-tax wages to compare the “typical” employee after-tax value of compensation in two industries.

– When there are differences in median after-tax wages and noncash benefits in different industries, the source of differences can be either different median characteristics of the work forces in those industries, differences in median job amenities, etc. As far as income (and family structure) influence employee values, the use of employer cost as an approximation in distributional analyses is not advised. – The available employer cost measures refer to the “typical” worker in broadly defined industries and occupations.

But the authors grant employers to pay often for benefits provided to some types of workers more than for others. As far as the leadership element is concerned, they may make higher pension contributions for more highly compensated workers. There is no theoretical basis for concluding that such comparisons using after-tax cash wages plus the average employer cost for benefits would provide a better proxy for the value of compensation than would use of after-tax cash wages only. More research on employee values is needed. (Famulari & Manser)

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