40537837 Compensation Strategy

8/6/2019 40537837 Compensation Strategy

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STRATEGIC PERSPECTIVES:

Steps to Formulate a TotalCompensation Strategy

STRATEGIC PERSPECTIVES:

Steps to Formulate a TotalCompensation Strategy



Steps to Formulate a Total Compensation Strategy

2

Group Members

Asif Anwar 03-05-08-054

Ashrafur Rashid Khan 03-04-06-041

Md. Rasula Kibria 03-05-08-022

Md. Anwar Hossain 03-05-08-027

Sadia Khan Mazlish 03-05-08-039




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OVERVIEW

� The objective of every business organization is to maximize its

profit. An organization is nothing without its employees. The

employees work hard, generate ideas, sometimes give

personal sacrifice etc. to take the organization toward itsobjective. The reward in return that the organization gives is

compensation. It can be in the form of cash, stock options,

good relation etc. Good/appropriate compensation can take the

organization in a very competitive position resulting from its

employees¶ high morale, added effort and a sense of responsibility/ love towards the organization.




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Need for Compensation Strategy?

Socio-Economic/ Organization HR/Compensation Competitive

Political Environment Strategy Policies Advantage

V S.

Socio-Economic/ HR/Compensation Organization Competitive

Political Environment Policies Strategy Advantage




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Strategic Choices

Corporate objectives,strategic plans,vision and values

Business unit

strategies

HR Strategies

Social, competitive

and regulatoryenvironment

Strategic

Compensationdecisions

Compensation

systems

Employee attitudes

and behaviors

Competitive

Advantage

What business

should we be in?

How do we win (gain

competitive

advantage) in those

business?

How should HR help us

win?

How should total

compensation help

us win?




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STEPS TO FORMULATE A TOTAL

COMPENSATION STRATEGY

1. Assess Total Compensation Implications

Culture and Values

Social, Economic and Political Context

Global Competitive Pressure

Employee/Union Needs

Other HR Systems

4. Reassess the Fit

Realign as Conditions Change

Realign as Strategy Change

2. Fit Policy Decisions

Objectives

Consistency

Competitiveness

Contribution

Administration

3. Implementation Strategy

Design System to Translate Strategy into

Action

Choose Techniques to Fit Strategy




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Step 1: Assess Total Compensation Implications

a. Cultural V alues

The values underlying an employer¶s treatment of its employees are

reflected in the pay system. Some employer¶s articulate their philosophies.

These philosophies guide their pay systems.

b. Social, Economic and Political Context The environmental context also affects the compensation choices. Context

refers to a wide range of pressures, including competitive pressures from

product and labor markets, legal and regulatory requirements, cultural

differences, changing workforce demographics, values and expectations etc.

different regions of the world may require different approaches to pay. Also,

living standards define the pay structure; where there is a high livingstandard, compensation package is relatively high rather than in a region

with low living standards and less demand.




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(cont«)

c. Global Competitive Pressure

U K

U S A

G

e r m a n y

B a n g l a

d e s h

C h i n a

I n d i a

Hourly Pay ($)

Paid V acations

Hours wor ked per Week0

5

10

15

20

25

30

35

40

45

50

Hourly Pay ($) Paid Vacations Hours worked per Week




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(cont«)

d. Employee Needs ± Flexi ble Compensation Systems

± Pay systems should be according to the need of individual employees

± An employee should be entitled to draw his salary the way he wants

e. Unions

± Pay strategies also need to be adapted to the nature of the union-management

relationship.

± Internationally, the role of unions in determining pay varies greatly. In Europe,

unions are major players and must be considered in any strategic pay decisions.

f. Role of Pay in Overall HR Strategy: On the Point, Support, Change Agent

± The pay system in just one of many HR systems that make up the HR strategy and the pay strategy in the organization

± In a highly decentralized and open organization where pay system is centralized

and confidential, a successful operation of that company is highly doubtful.




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Step 2: Fit The Policy Decision to Strategy

I n step 1 we have discussed the factors that we should take into consideration to

design a total compensation strategy. Next we come into a policy decision to

formulate a compensation strategy.

Issues that are examined to fit this policy decision to company strategy includes -

± Objectives

± Consistency

± Competitiveness

± Contribution

± Administration




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Step 3: Implement the Strategy

� Translate Strategy into Action

� Choose Technique to fit Strategy.

Step 4: Reassess the Fit

� Review the changed conditions and modify the Compensation

strategy

� Modify the Compensation strategy with the change of companystrategy.




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COMPENSATION STRATEGY: SOURCES

OF COMPETITIVE ADVANTAGE

A Company¶s strategic compensation should be competitive. It provides the

sources of competitive advantages.

There are two ways to test whether the compensation is competitive or not.

1. Adding Value

± By controlling cost

± By attacking and retaining critical talent

± By motivating people to learn and improve.

2. Difficult to Imitate

± Competitors can not copy it.

± Organization¶s business strategy and Compensation system fit together

± The fit among the compensation and other HR Activities

± Implementation of the compensation system.




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COMPENSATION STRATEGY:

INTERNAL vs. EXTERNAL FACTORS

� An organization Exists to accomplish specific Goals and

objectives.

� The individuals hired for the Organization have their own needs.

Hence there is a basis for an exchange ± The Employee offers

specific behavior desired by the Organization to meet its goals and

objectives in return for money, goods, and services.

� If we go through the first four steps of compensation policy

formulation, we can see that there are some external factors, such

as social, economic and political context, global competitive

pressure, etc are common for all organization that they have to

consider in the same way before formulating compensation policy.

� But if we focus on internal factors, such as culture, value,

objective, business policy, HR systems, we can observe that each

organization differ from others.




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Strategic Approaches

Recent studies have begun to research what really does matter, but

the answer is still fuzzy. Two alternative approaches have highlighted

that are-

1. Contingent business strategy approach ± Which presumes that

one size, does not fit all. The art of managing compensation

strategically involves fitting the compensation system to thedifferent business and environment condition.

2. Best Practice Approach ± It assumes that there exist one best

Way and focus on best implementation system.

Today¶s business world is so dynamic, which is ever changing so in

practice we can say contingent business strategy approach is best

suitable.




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CONCLUSION As each organization¶s sustainability depends on the best effort of their employees,

so to achieve competitive advantage over others each organization must focus on

some basic individual factors of the employee to motivate and make enthusiastic

them to work. These factors are -

1. Monetary return

2. More socio-psychological return

So from the overall discussion we can conclude that before formulation of a

compensation policy an organization should ±

± Asses the environmental condition that exists

± Decide the best strategic choice that based on the organizations objectives,contingency, competitiveness, contributions and administration.

± Implement the strategy, and

± Reassess the fit

To do that one standard policy is not appropriate, so it is from our view is the best

way to follow the Contingent business strategy or Environmental context

approach considering the individual employee needs of the organization.





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40537837 Compensation Strategy