THE STRATEGIC ROLE OF COMPENSATIONYOUR SUBTITLE GOES HERE

WHAT IS COMPENSATION?• Compensation can be defined as all forms of

financial returns and tangible service and benefits employees receive as part of an employment relationship.

• Which includes:• Direct financial compensation • Indirect financial compensation • Non-financial compensation 

VIEWS OF COMPENSATION

MANAGERS’ VIEW• Major expense• Means to influence

employee’s behavior• To improve the

organization performance

EMPLOYEES VIEW• Return in an exchange

with their employer an entitlement or a reward.

• Major source of financial security

• Entitlement for being an employee of the company

• Reward for a job well done.

WHAT IS A STRATEGY?

• The company’s long-term plan for how it will balance its internal strengths and weaknesses with its external opportunity and threats to maintain a competitive advantage.

WHAT IS STRATEGIC COMPENSATION PLANNING?

• Determines how much an organization want to pay employees and what type of employees they want to attract.

• Pay scales, • Reward programs,• Benefits packages • Company perks.

WHAT IS STRATEGIC HUMAN RESOURCES MANAGEMENT?

• Strategic HRM is an approach that defines how the organization's goals will be achieved through people by means of HR strategies and integrated HR polices and practices.

THE MAIN PURPOSE OF STRATEGIC COMPENSATION PLANNING IS TO :

• Retain• Attract• Motivate• Develop

SHRM AND THE STRATEGIC DIRECTION OF AN ORGANIZATION.

• Strategic HRM is the key to improved business performance.• Strategic direction is a course of action that leads to the

achievement of the goals of an organization's strategy.• An organization’s strategic direction is a combination of its

vision, mission, strategies and its core values.

A ROAD MAP TO EFFECTIVE COMPENSATION

GOALS OF A STRATEGIC COMPENSATION POLICY

• To reward employees’ past performance.• To retain competitive in the labour market.• To maintain salary equity among employees.• To mesh employees’ future performance with

organizational goals.• To control the compensation budget.• To attract new employees.• To reduce unnecessary turnover.

WHAT IS A COMPENSATION SYSTEM?

• A compensation system is a system that is designed to determine the amount of pay, given the many individual in an organization.

TYPES OF COMPENSATION SYSTEMS

IMPORTANCE OF COMPENSATION SYSTEMS WITHIN AN ORGANIZATION

•  A well-designed compensation plan becomes one of many tools a firm can use to help reach its strategic goals.

• Make the compensation system to attract the best for the organization.

• Reward the peak performers with systems that match achievement to compensation.

IMPORTANCE OF AN IDEAL COMPENSATION PLAN

• An ideal compensation system will have:

• Positive impact on the efficiency and results produced by employees.

• Better performance and achievement of standard

• Enhance the process of job evaluation..

IMPORTANCE OF AN IDEAL COMPENSATION PLAN

• Sound Compensation/Reward System brings peace in the relationship of employer and employees.

• Adequate compensation retains valuable employees

• Creates a healthy competition among them

• Encourages employees to work hard and efficiently.

• The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.

IMPORTANCE OF COMPENSATION SYSTEMS WITHIN AN ORGANIZATION

• Compensation systems that maintain its competitiveness and ensure sustainability in the future include:

• Good balance of wages• Benefits• Rewards and recognition.

IMPORTANCE OF AN IDEAL COMPENSATION PLAN

• Increase morale, efficiency and cooperation.• Being just and fair would provide satisfaction to the

workers• Solve disputes between the employee, union and

management. • The system should follow the management principle of

equal pay. It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel.

HOW DO WE DEVELOP A TOTAL COMPENSATION STRATEGY

HOW DO WE DEVELOP A TOTAL COMPENSATION STRATEGY

• Define your compensation philosophy.• Link compensation to your overall business strategy.• Change the culture and reinforce it with

compensation.• Reward the behaviours that drive the results.• Think total compensation.• Measure your return on invested payroll £s.

TOTAL COMPENSATION STRATEGY

• Strong total compensation strategy must

align with your business strategy.

WHAT IS OUR COMPETITION FOR THE PEOPLE WE WANT TO HIRE?

• Will we focus on salary, bonus plans tied to performance, equity in the business, our benefit package?

HOW WILL WE POSITION OURSELVES IN OUR PAY MARKET – MIDDLE OF THE MARKET, ABOVE AVERAGE?

HOW CAN WE BE SURE THAT OUR PAY PROGRAMS SUPPORT OUR BUSINESS PLANS AND OUR CULTURE?

HOW DO WE MAKE SURE PAY PROGRAMS WORK FOR EMPLOYEES, MANAGEMENT AND OUR SHAREHOLDERS?

COMPENSATION STRATEGY

• Understanding how a compensation

strategy may be seen as a source of

sustained competitive advantage for the

organization

• Developing the right

compensation strategies is

critical to attracting, retaining,

motivating and developing the

right employees for the right

positions.

COMPETITIVE ADVANTAGE• Competitive advantage is achieved

when a business produces surplus profits - greater than it's competitors

COMPENSATION STRATEGIES

• For a business to achieve the results associated

with a competitive advantage it needs the right

people consistently doing the right things in the

right way and for the right reasons.

COMPETITIVE ADVANTAGE

• In order to capture and maintain

competitive advantages the

company must develop and

implement strategies to

differentiate themselves from the

competition.

• Read more: http://www.ehow.com/how_7787980_build-sustainable-competitive-advantage.html#ixzz2mHKEn41v

MICHAEL PORTER IDENTIFIED TWO BASIC TYPES OF COMPETITIVE ADVANTAGE:• “A competitive advantage exists when the firm is

able to deliver the same benefits as competitors

• but at a lower cost (cost advantage),

or deliver benefits that exceed those of competing

products

(differentiation advantage)…

THE “TOTAL REWARDS” VALUE PROPOSITION

• Compensation is only one of four issues that have

to be engineered and managed in such a way that

will sustain the company’s competitive advantage.

The others are a compelling future; personal and

professional development opportunities and a

positive work environment,.

THE “TOTAL REWARDS” VALUE PROPOSITION

• A compelling compensation plan becomes a

cohesive link within the total rewards strategy that

makes up a company’s value proposition for its key

talent.

THE KEY• In sustaining a competitive advantage, creating a

compensation strategy that would envision, create and sustain

a rewards system that will draw a compelling link are

• company vision (where),

• business strategy (how),

• roles and expectations (who and what),

• rewards (how much)

• and employee vision(relevance).

• This is called creating “line of sight”—and any company that

expects to have a competitive advantage must achieve it.

“If you pick the right people and give them the opportunity to spread their wings- and put compensation as a carrier behind it-you almost don’t have to manage them”. Jack Welch

ANY QUESTIONS????