-Astrategic perspective focuses on those compensation decisions that help the organization gain and sustain
- The greater the alignment, or fit, between the organizational strategy and the compensation system, the more
effective the organization
- Different strategy within same industry
Different strategy within same company
- Strategy - fundamental business decisions that an organization has made in order to achieve its strategic
- corporate level- What business should we be in?
- business level - How do we gain and sustain competitive advantage in this business?
- functional level- How should total compensation help this business gain and sustain competitive advantage?
Support Business Strategy (exhibit 2.2)
- pay systems to align with the business strategy
- better the alignment, or fit, between the organization and the compensation system, the more effective the
- The innovator vs, cost cutter's vs. customer-focused business strategy
- defenders as those that operate in stable markets and compete on cost,
- prospectors are more focused on innovation, new markets,
- generic strategy frameworks.
- look at IBM, southwest and sas
Support HR Strategy
- Pay systems should align with the organization's business strategy
- When business strategies change, pay systems should also change
THE PAY MODELGUIDES STRATEGIC PAY DECISIONS
1. Objectives: How should compensation support the business strategy and be adaptive to the cultural and
regulatory pressures in a global environment
2. Internal alignment: How differently should the different types and levels of skills and work be paid within
3. External competitiveness: How should total compensation be positioned against competitors
4. Employee contributions: Should pay increases be based on individual and/or team performance, experience
and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, business unit's
5. Management: How open and transparent should the pay decisions be to all employees?
- Who should be involved in designing and managing the system? (
Stated versus Unstated Strategies
- Their compensation strategy emerges from the pay decisions they have made.
- Unstated compensation strategy is inferred from compensation practices.
- there is a compensation strategy at work. DEVELOPINGATOTALCOMPENSATION STRATEGY: FOUR STEPS (exhibit 2.4)
Step 1:Assess Total Compensation Implications
1. Business Strategy and Competitive Dynamics—Understand the Business
- understand specific industry and focusing on factors in the business environment
- Competitive dynamics can be assessed globally and locally
2. HR Strategy: Does Pay Play a Supporting Role or a Catalyst for Change
- compensation or pay strategy is influenced by how it fits with the overall HR
-Ahighly centralized and confidential pay system controlled by a few people in a corporate unit will not
support a highly decentralized, flexible, open organization.
- core values guide employer' behaviours and are reflected in the pay systems.
- mirrors the company's image and reputation.
4. Social and Political Context
Context refers to a wide range of factors, including legal and regulatory requirements, cultural
differences, changing workforce demographics, expectations
eg. (child care, chemical dependency counselling, educational reimbursements, employee assistance
- Offering more choice is one approach.
- Older workers (pay into retirement funds)
- , younger employees (pay for child care, automobile insurance, financial counselling, or other benefits
such as flexible schedules).
6. Union Preferences
- Pay strategies also need to be adapte