Total Strategic Compensation

Total Strategic Compensation

Human Resource ManagementHuman Resource Management

What is “Total Strategic Compensation”? Intrinsic rewardsIntrinsic rewards

Satisfaction with the Satisfaction with the job and workjob and work

ChallengeChallenge Skill varietySkill variety Task significanceTask significance ResponsibilityResponsibility Pride in workPride in work

Extrinsic rewardsExtrinsic rewards FinancialFinancial NonfinancialNonfinancial

Positive relationshipsPositive relationships Pleasant working Pleasant working

conditionsconditions Activities provided by Activities provided by

the companythe company• TeamsTeams

• Social eventsSocial events

• CamaraderieCamaraderie

What is “Total Strategic Compensation”? Direct compensationDirect compensation

All monetary All monetary compensationcompensation Base salaryBase salary Incentives, bonusesIncentives, bonuses

Indirect compensationIndirect compensation BenefitsBenefits

Protection programsProtection programs Pay for time not workedPay for time not worked Employee services and Employee services and

perquisitesperquisites

Recognition programsRecognition programs Service awardsService awards OthersOthers

Total Compensation Program Objectives

Motivate employeesMotivate employees Attract them to the organizationAttract them to the organization Retain competent and better performersRetain competent and better performers Encourage low performers to leaveEncourage low performers to leave Motivate other Motivate other key behaviorskey behaviors that support that support

organizational goalsorganizational goals

Which Key Behaviors?

Individual performanceIndividual performance Group/team performanceGroup/team performance Organizational Organizational

performanceperformance CreativityCreativity DependabilityDependability Problem solvingProblem solving FlexibilityFlexibility

EntrepreneurismEntrepreneurism ConformityConformity CooperationCooperation SalesSales SupervisionSupervision ManagementManagement Performance of Performance of

undesirable workundesirable work OthersOthers


Support the organizationSupport the organization Attaining strategic goalsAttaining strategic goals Supporting cultural changeSupporting cultural change Managing highly flexible environmentsManaging highly flexible environments Supporting new management strategiesSupporting new management strategies Meeting organizational needs as well as those Meeting organizational needs as well as those

of the individual business unitof the individual business unit


Administratively soundAdministratively sound Flexibility in rewarding diverse job and work Flexibility in rewarding diverse job and work

typestypes Easily communicated to a variety of employeesEasily communicated to a variety of employees Complies with legislation and regulationsComplies with legislation and regulations Adaptable when components change, such as Adaptable when components change, such as

benefitsbenefits


Cost effectivenessCost effectiveness Trend to lower fixed costs of compensationTrend to lower fixed costs of compensation Tie increases in compensation to achievement of Tie increases in compensation to achievement of

organizational goalsorganizational goals Tie increases to profitabilityTie increases to profitability Maximize tax savingsMaximize tax savings

Many benefit expenditures are tax-deductibleMany benefit expenditures are tax-deductible Section 125 and 401(k) plans allow tax savings for Section 125 and 401(k) plans allow tax savings for

the employeethe employee

Pay: Direct Compensation

Base compensationBase compensation Traditional salary gradesTraditional salary grades BroadbandingBroadbanding ““All-salaried workforce”All-salaried workforce” ““Hierarchical” versus Hierarchical” versus

“egalitarian”“egalitarian”

““Nontraditional” pay plansNontraditional” pay plans Individual Individual

incentives/bonusesincentives/bonuses Group/team Group/team

incentives/bonusesincentives/bonuses Organization-wide Organization-wide

incentives/bonusesincentives/bonuses ““Pay at risk”Pay at risk” Skill-based paySkill-based pay Ownership plans (ESOPs)Ownership plans (ESOPs) Competency-based payCompetency-based pay

Base Compensation Components External competitivenessExternal competitiveness

Market analysisMarket analysis

Internal equityInternal equity Job evaluationJob evaluation

Individual equityIndividual equity Well-designed incentive or Well-designed incentive or

merit programsmerit programs

Administrative policies Administrative policies and proceduresand procedures

External Competitiveness

Establishes the value of the job on the marketEstablishes the value of the job on the market Must understand the jobMust understand the job

Accurate job analysisAccurate job analysis Job descriptionJob description

Must define the relevant labor marketMust define the relevant labor market ““Who is the competition for incumbents for this Who is the competition for incumbents for this

job?”job?” Salary data are gathered accordinglySalary data are gathered accordingly

Internal Equity

Established through job evaluationEstablished through job evaluation Measures the relative value of the job to the Measures the relative value of the job to the

organization, based on its valuesorganization, based on its values Measures the worth of the job, not the incumbentMeasures the worth of the job, not the incumbent Necessary when market data are not available for Necessary when market data are not available for

all jobsall jobs Communicates management’s intention to be fairCommunicates management’s intention to be fair

Job Evaluation

Many different typesMany different types SlottingSlotting Point-factor job evaluationPoint-factor job evaluation

Currently there is a trend toward less Currently there is a trend toward less emphasis on point-factor job evaluationemphasis on point-factor job evaluation Increased emphasis on competitivenessIncreased emphasis on competitiveness New management strategies de-emphasize New management strategies de-emphasize

status and hierarchystatus and hierarchy

Point Factor Job Evaluation

““Compensable factors” Compensable factors” are identifiedare identified By top managementBy top management Based on strategy, goals, Based on strategy, goals,

mission and climate of the mission and climate of the organizationorganization

Older systems used 8 to 10; Older systems used 8 to 10; now more often 4 to 6now more often 4 to 6

Factors are weighted Factors are weighted based on their relative based on their relative valuevalue

A measuring device using A measuring device using these factors is created these factors is created

Jobs are analyzed and Jobs are analyzed and compared to this compared to this “yardstick”“yardstick”

Thorough “quality Thorough “quality control” is donecontrol” is done

End product is an array of End product is an array of jobs, from the most to jobs, from the most to least important in valueleast important in value

Individual Equity

Am I being rewarded fairly forAm I being rewarded fairly for The amount of job-related education I haveThe amount of job-related education I have The number of years of job-related experience I The number of years of job-related experience I

havehave My level of performance relative to othersMy level of performance relative to others How hard I workHow hard I work The value of what I believe my services to the The value of what I believe my services to the

organization to beorganization to be Other issues that may be relevantOther issues that may be relevant

Individual Equity

Established throughEstablished through Fair and accurate performance appraisal Fair and accurate performance appraisal

systems that link performance to paysystems that link performance to pay Well-designed incentive systems that link Well-designed incentive systems that link

accomplishment of goals and performance to accomplishment of goals and performance to bonuses, stock options, profit sharing, etc.bonuses, stock options, profit sharing, etc.

Critical for motivationCritical for motivation To remain with the organizationTo remain with the organization To perform at high capacityTo perform at high capacity

Administrative Policies

Ensure that compensation pays people for Ensure that compensation pays people for what we want them to dowhat we want them to do

Allocate resources fairly and consistentlyAllocate resources fairly and consistently Consist ofConsist of

Salary policy stating the total compensation Salary policy stating the total compensation policypolicy

Salary structureSalary structure Policies about how pay is changedPolicies about how pay is changed

Salary Structures

ConsiderConsider External value (market analysis results)External value (market analysis results) Internal value (job evaluation results)Internal value (job evaluation results)

Establishes “grades” and “ranges” that jobs Establishes “grades” and “ranges” that jobs are placed inare placed in Represent the organization’s policies of the Represent the organization’s policies of the

value of jobsvalue of jobs

Types of Pay Increases

Cost of living allowances (COLA’s)Cost of living allowances (COLA’s) Promotional increasesPromotional increases Pay increases within the range:Pay increases within the range:

Merit payMerit pay ““Pay for performance”Pay for performance”

Step payStep pay Pay for seniorityPay for seniority

Traditional Merit Pay Program

Rewards employees for performanceRewards employees for performance Provides the mechanism to increase base salaryProvides the mechanism to increase base salary Usually combines performance level and position Usually combines performance level and position

within the grade to determine the salary increasewithin the grade to determine the salary increase Can be quite effective if designed and Can be quite effective if designed and

implemented properlyimplemented properly Very difficult to implement properlyVery difficult to implement properly Often the problem is measuring performance Often the problem is measuring performance

New Ways to Pay People BroadbandingBroadbanding Skill- or knowledge-Skill- or knowledge-

based paybased pay Competency-based Competency-based

paypay Bonuses and other Bonuses and other

incentivesincentives IndividualIndividual Group or teamGroup or team Entire organizationEntire organization

Broadbanding Collapses many grades into Collapses many grades into

fewer “broad bands”fewer “broad bands” Useful when there are few Useful when there are few

management levelsmanagement levels Useful for dual-career tracksUseful for dual-career tracks More flexibility in paying More flexibility in paying

individuals within bandsindividuals within bands More flexibility in matching More flexibility in matching

individuals to market ratesindividuals to market rates Can be combined with a Can be combined with a

traditional systemtraditional system

Skill or Knowledge -Based Pay Usually about ten skill or Usually about ten skill or

knowledge “units”knowledge “units” Encourages diversification, Encourages diversification,

reduces specializationreduces specialization Flexibility to change product or Flexibility to change product or

service emphasisservice emphasis Increased work force stability, Increased work force stability,

greater job securitygreater job security More satisfying jobs, fewer More satisfying jobs, fewer

absences, reduced labor costs absences, reduced labor costs (?)(?)

More costly in compensation More costly in compensation and training; can lead to above-and training; can lead to above-market paymarket pay

Competency-Based Pay

Competencies: The set of Competencies: The set of key skills, abilities, key skills, abilities, knowledge or personal knowledge or personal characteristics that the characteristics that the organization requires for it organization requires for it to accomplish its strategic to accomplish its strategic goals. goals.

All individuals within the All individuals within the organization, to at least organization, to at least some extent, will be some extent, will be successful only to the successful only to the degree that they have degree that they have adequate levels of these adequate levels of these competencies competencies

Competency performance Competency performance data are used for data are used for development, pay, development, pay, promotions and training promotions and training decisionsdecisions

Documents

Total Strategic Compensation