financial flexibility

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Is the policy of adjusting employment costs in line with the demand for labour in the organization, and reflecting the supply of labour in the external labour market. In this sense, financial flexibility and numerical flexibility are closely associated—certain forms of numerical flexibility inevitably lead to greater financial flexibility for the employer. More generally, in terms of setting wage levels, financial flexibility means moving from uniform and standardized pay structures towards individualized pay systems. In particular, it is associated with abandoning national pay frameworks that are negotiated with trade unions, and replacing them with either locally negotiated agreements or non-negotiated pay systems based on individual performance. Financial flexibility usually involves some sort of performance-based element to pay. [See performance-related pay, merit pay, profit-related pay, and profit-sharing.]

Subjects: Human Resource Management.

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