COMP (Chapter 2: Strategy - Totality of Decisions)

3 Business Strategies:

- Innovator - Cost Cuffer - Customer

4 Steps to Developing A Total Compensation Strategy:

1. Assess Total Compensation Implications 2. Map a Total Compensation Strategy 3. Implement Strategy 4. Reassess

3 Tests to determine whether a pay strategy is a source of advantage:

1. Is it aligned? 2. Does it differentiate? 3. Does it add value?

3 Aspects to the Alignment of a Pay Strategy:

1. align with business strategy 2. align externally with the economic and sociopolitical conditions 3. align internally within the overall HR system.

Fundamental Strategic Choice: (Business Level)

How do we gain and sustain competitive advantage in this business?

Fundamental Strategic Choice: (Function Level)

How should total compensation help this business gain and sustain competitive advantage?

Current Popular Theory

Managers should tailor their pay systems to align with the organization's business strategy. (this rationale is based on contingency notions.)

The Pay Systems

Mirrors the company's image and reputation and reflects the values that guide an employer's behavior and underlie its treatment of employees.

When Business Strategies Change

Pay Systems should change too.

Fundamental Strategic Choice: (Corporate Level)

What business should we be in?

Context

a wide rang of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and the like.

Blindly benchmarking best practices...

amounts to trying to stay in the race, not win it!

Compensation Strategy and HR Strategy

are central to successful business strategy execution.

Best Pay Practices

compensation practices that allow employers to gain preferential access to superior HR talent and competencies (i.e. valued assets), which in turn influence the strategies the organization adopts.

Conventional Wisdom

competing on cost requires lower compensation; whereas, competing through innovation is likely to be more successful with high-powered incentives/pay for performance.

Contingency Notions:

differences in the firm's business strategy should be supported by corresponding differences in its human resource strategy, including compensation.

Compensation Strategies

do not line up neatly with generic business strategies.

Map

do not tell which strategy is BEST, they just provide a framework and guidance.

Vicious Circle

downward momentum, continuous difficulties.

Cost Cuffer's Business Strategy

efficiency-focused strategy stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed.

Michael Porter's Strategy

firms that cut costs would be said to follow a cost leadership strategy, while those that seek to provide a unique and/or innovative product or service at a premium price are said to follow a differentiation strategy.

A Strategic Perspective

focuses on those compensation choices that help the organization gain and sustain competitive advantage.

Assess Total Compensation Implications:

includes an understanding of the specific industry in which the organization operates and how the organization plans to compete in that industry.

Compensation

is key to motivating employees to fully utilize their abilities.

Alignment

is probably the easiest tests to pass.

Compensation (through incentive and sorting effects)

is the key to attracting, retaining, and motivating employee with the abilities necessary to execute the business strategy and handle greater decision-making responsibilities.

Prospectors

more focused on innovation, new markets, and so forth.

A Supporting Compensation Approach

places less emphasis on evaluating skills and jobs have more emphasis on incentives designed to encourage innovations.

Customer Focused Business Strategy:

stresses delighting customers and bases employee pay on how well they do this.

Innovator Business Strategy

stresses new products and short response time to market trends.

Strategy

the fundamental directions that an organization chooses.

An Organization defines its Strategy through...

the tradeoffs it makes in choosing what and what not to do.

Defenders

those that operate in stable markets and compete on cost.

The Ultimate Purpose (the so what)

to gain and sustain competitive advantage.

Virtuous Circle

upward momentum, continuous improvement.