Strategy and Compensation

8/9/2019 Strategy and Compensation

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Questions

What is included in compensation?

When should someone receive compensation?

How does compensation help to improve

organizational performance and give a sustained

competitive advantage?


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What is Compensation?

Compensation refers to all forms of financial

returns and tangible services and benefits an

employees receive as part of an employment

relationship

(Milkovich, Newman, & Gerhart, 2011)


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A Total Returns Perspective



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Phases in a Total Rewards Program

(Heneman, 2007)


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Milkovich et al.,

Version of the

Same Ideas

(Milkovich, Newman, & Gerhart, 2011, p. 43)


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Who Are the Stakeholders?

Management

Employees

Shareholders (if publicly traded) Taxpayers (if publicly funded)

Customers

Government Society in General


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Exhibit 1.1: Hourly Compensation Costs for Manufacturing Workers (in

U.S. Dollars)

(Milkovich &

Newman, 2008)

See p. 5 for

updated #s


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What is a Strategic Perspective?

A strategic perspective

focuses on those competitive

choices that help the

organization gain and sustaincompetitive advantage.



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Strategic Choices

Compensationsystems

Employeeattitudes andbehaviors

Competitive

advantage

Strategic

compensationdecisions

Social, competitive,

and regulatoryenvironment

How should total

compensation help

us win?

Corporate objectives

strategic plans,vision, and values

What business

should we be in?

HR strategies

How should HR

help us win?

Business unitstrategies

How do we win (gain

competitive advantage) in

those businesses?

(Milkovich & Newman, 2008)

See p. 37

of currenttext


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Generic Business Strategies

Innovator

Cost Cutter

Customer-focused



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Tailor the Compensation System to the Strategy

StrategyBusiness

Response

HR Program

AlignmentCompensation

System

Innovator:

Increase ProductComplexity and

Shorten Product

Life Cycle

Product

Leadership

Shift to Mass

Customization

and Innovation

Cycle Time

Committed to

Agile, Risk

Taking,

Innovative

People

Reward

Innovation in

Products andProcesses

Market-Based Pay

FlexibleGeneric

Job Descriptions

Cost Cutter:

Focus on

Efficiency

Operational

Excellence

Pursue Cost-

effective

Solutions

Do More With

Less

Focus onCompetitorsLabor Costs

Increase VariablePay

EmphasizeProductivity

Focus on System

Control and WorkSpecifications

Customer

Focused:

Increase

Customer

Expectations

Customer

Intimacy

Deliver Solutions

to Customers

Speed to Market

Delight

Customer,

Exceed

Expectations

CustomerSatisfactionIncentives

Value of Job andSkills Based on

CustomerContact

(Milkovich, Newman, &

Gerhart, 2011, p. 38)


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So strategy provides the overall context and frameworkto guide HR decisions, including compensation.

There are many alternatives to achieve the givenobjectives, even when using the same strategicapproach, therefore

We value processes and activities to create a rational,coherent, or fair system that can be communicated

effectively, attracts and retains key talent, andincreases or maintains participants motivation andperformance.


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Internal alignment -Consistency of comparisons among jobs/skilllevels insidean organization (a.k.a. internal equity)

External competitiveness - Consistency of comparisons of similarjobs between organizations (i.e., the market; a.k.a. external equity)

Individual alignment - Comparisons regarding performance andcompensation between individuals (a.k.a. individual equity)

Compensation Administration or Management - Policies toensure the right people get the right pay for achieving the right objectives in the

right way

Four Policy Choices That Provide Framework for Text


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Strategy and Compensation