Choosing wehether to lead, lag, or match the market: Developing a competitive pay strategy for a new restaurant

This paper demonstrates how cost-benefit analysis can be used to develop a company's pay strategy. Using the case of Punk's Backyard Grill, a new venture starting in the Washington, DC area, quantitative aspects of Utility Analysis are combined with the judgments of the company's owners to provide estimates of the value associated with seven pay strategies. Results showed that leading the market by 5% produced the greatest return. Sensitivity analysis is used to see how drastically estimates changes owing to the nature of the paper's estimates. This methods presented in this paper should help others making pay policy decisions use cost-benefit analysis as part of their decision process.