Strategic Perspective of Compensation

• STRATEGY refers to the fundamental

directions that an organization has
chosen. An organization defines its
strategy through the tradeoffs it
makes in choosing what (and what
not) to do.
STRATEGY BUSINESS RESPONSE HR PROGRAM COMPENSATION
SYSTEM

INNOVATOR 1. Product 1. Committed to 1. reward innovation

2. leadership, agile in products and
3. Mass customization 2. risk taking processes
4. Reduced cycle time 3. Innovative 2. market based pay
people 3. Flexible

COST CUTTER 1. operational excellence 1. do more with less 1. focus on

2. pursue cost effective competitors
solutions labor costs
2. increase
variable pay
3. emphasize
productivity
4. Focus on
system control
and work
specifications
CUSTOMER 1. deliver solutions to 1. Delight customer 1. customer
FOCUSED customers exceed expectations satisfaction
2. speed to market 2. Value of job
and skills
based on
customer
contact.
 The strategic compensation decisions can
be considered in terms of the objectives and
four basic policies
• Objectives
• Alignment
• Competitiveness
• Contributions
• Management
 Developing a total compensation
strategy
1. Assess total compensation
implications
2. Map a total compensation
strategy
3. Implement and reassess
 1. Assess total compensation
implications
• Competitive dynamics
• culture./values
• Social and political context
• Employee needs
• Customization and flexibility
• Unions
 2. Map a total compensation
strategy
• Objectives
• Alignment
• Competitiveness
• Contributions
• Management
 3. Implement and Reassess
• Design and execution of the compensation
• Fits changing conditions
• Making the links between compensation
strategy, pay systems, people’s perception
and behaviors
 How to determine whether a pay
strategy is a source of advantage
or not
• Align
• Differentiate
• Add value