Compensation and Benefits Textbook Notes.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 3342A/B
Linda Eligh

Chapter 2: The Totality of Decisions Similarities and Differences in Strategies  Google, Medtronis and Merrill Lynch  All 3 of their strategies emphasize outstanding employee performance and commitment Differences  Google offers generous stock options and very good benefits packages; downplays cash compensation  Medtronic’s pay strategy is “total well being”; emphasis on performance based pay opportunity to earn more  Merrill Lynch is focused on attracting, motivating and retaining the best talent; competitive base pay, aggressive bonuses and stock awards  Aggressive approach may lead to too much risk taking and unethical behaviours Different Strategies within the Same Industry  When different units in same company have different compensation Strategic Perspective: focus on compensation decision that help the organization gain/sustain competitive advantage Strategic Choices  What business should we be in? how do we gain competitive advantage? How will total compensation help? Strategy: Decisions an organization has made to achieve its strategic objectives Competitive advantage: a practice/process that results in better performance than competitors Support Business Strategy  Make pay system align with strategy; firm strategy with HR strategy  Based on contingency notions  Greater alignment= more effective  Innovator stresses new products; incentive based on innovation  Cost Cutter focus on efficiency; focus on productivity  Customer Focusedcustomer expectations; customer satisfaction incentive  Michael Porter - cost cutting= cost leadership  Miles and snow – defenders operate in stable market; prospectors focused on innovation and new markets  Most have both cost AND innovation; sometimes the strategies do not line up  New business strategy leads to new compensation strategy  IBM example- new flexible system with high tech market- had to redesign jobs and cut management at some levels  Todd Watson world at work study  reward and talent managemtn that supports business goals is 2x as likely to lead to high performance Support HR Strategy  Compensation strategy must align with overall HR strategy  Compensation is the key to attracting retaining and motivating employees The Pay Model Guides Strategic Pay Decisions  Whole foods; started small- is now a large company  Designed compensations system to support growth  5 strategic compensation decisions facing whole foods managers 1. Objectives: How should compensation support business strategy and be adaptive to environmental pressures? - Increase shareholder value through profits/growth - Go to lengths to satisfy customers - Seek employees who will help profits 2. Internal Alignment: How different should different types and levels of skills and work be paid within the organization? - 8-10 self managed teams for store operation - shared fate philosophy; managers pay is not more than 14x that of full time employees - all full time employees qualify for stock options - 94% of options go to non executive employees 3. External Competitiveness: How should total compensation be positioned against competitors? What types of compensations should be used? - Offer unique deal compares to competition - Provide heath insurance and 20 hours of paid volunteer time 4. Employee Contributions: should pay increases be based on individual/ team performance, on experiences/learning, on skills, on cost of living, personal needs, business unit performance? - Shared fate- performance of team measured in terms of revenue per hour worked 5. Management: Hoe open and transparent are pay decisions? Who is involved in designing and managing system? - No secrets; pick health insurer Stated vs. Unstated Strategies  All organizations that pay people have a strategy  Some have unwritten strategy; from decision that have been made  Inferred from past decisions 4 Steps to Developing a Total Compensation Strategy 1. Assess Total Compensation Implications  Business Strategy and Competitive Dynamics  Understanding the industry and how organization plans to compete  Need to be able to cope with turbulent dynamics  Learn to gauge underlying dynamics in a business  Aligning different strategies; mix of strategy  Difficult to compare pay between countries; but managers must be globally and locally knowledgeable if multinational company  HR Strategy: Is Pay a supporting role or Catalyst for Change  Pay strategy is influenced by how it fits in HR strategy  Can be supporting role or catalyst  Centralized pay strategy will not fit a decentralized open organization  Culture/ Values  Core values guide behaviours and are reflected in pay systems  Missions statements are the moral compass of an organization
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