compensation strategy.pptx

7/29/2019 Compensation Strategy.pptx

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Formation and Principles

Compensation Strategy


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Compensation strategies Organizations

should consider

Relating job worth to differences in job requirements. Recognizing the worth and value of employee knowledge

and skills.

Rewarding employee contributions and the resultsachieved.

Promoting continued employee acquisition and upgradingof knowledge and skills.

Supporting team and work unit cooperative efforts

Designing compensation plans that successfully competewithin established labor markets

Aligning compensation of all the employees with theobjectives and goals of the organization.

Providing a compensation package that enhancescurrent lifestyles and provides long term protection foremployees and their dependents.


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HIGH PAY LOW COMMITMENT

Hired Guns(Stockbrokers)

HIGH PAY HIGH COMMITMENT

Cult - like(Microsoft)

LOW PAY LOW COMMITMENT

Workers as Commodity(Employers of Migrant

Farm Workers)

LOW PAY HIGH COMMITMENT

Family(Starbucks)L

ow

TRANSACT

IONAL

Low HighRELATIONAL

Types of Employment Relationships


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Exhibit 2.2: Strategic Choices


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Tailor the Compensation System to the Strategy

Strategy

Business

ResponseHR Program

Alignment

Compensation

System

Innovator:

Increase Product

Complexity and

Shorten Product

Life Cycle

Cost Cutter:

Focus on

Efficiency

Customer

Focused:

Increase

Customer

Expectations

Product Leader

Shift to Mass

Customization and

Innovation

Cycle Time

Committed to

Agile, Risk Taking,

Innovative People

Reward Innovation

in Products and

Processes

Market-Based Pay

Flexible Generic

Job Descriptions

Operational

Excellence

Pursue Cost-

effective Solutions

Do More With Less Focus on LaborCosts

Increase incentives

Productivity focus

System focus oncontrol and work

specifications

Customer Intimacy

Deliver Solutions to

Customers

Speed to Market

Delight Customer,

Exceed

Expectations

CustomerSatisfactionIncentives

Value of Job andSkills Based on

Customer Contact

C i i S C


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Competitive Strategy, Corporate

Policies, and Compensation

Aligning reward strategy to firms strategic aims.

Eg: IBM policies

Pay to Market

The company switched from its previous single pay plan (for non

sales employees) to different pay plans and merit budgets for

different job families (accountants, engineers, and so on). Thisenabled IBM to pay different job families in a more market

oriented way.

Fewer, broadband jobs

IBMs old system slotted IBMs jobs in to 24 narrow wage grades

Employees only did their job New policy slotted all jobs based on three factors skills,

leadership requirement and scope / impact).

In US the job grades dropped from 5,000 to 1200 and employees

had wider job duties.


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Let Managers manage

The previous compensation plan based raises on a

complex formula that linked performance appraisal

scores to salary increases measured in tenths of apercent.

The new system gives managers a budget and some

coaching to differentiate between their stars and

acceptable performers and provide pay differences

Incentivize Employees

The old policy used to give incentives to only Sales

employees, but the new policy makes a part of thesalary as incentives irrespective of the type of the job of

the employees.


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Example: The Strategic CompensationDecisions Facing Starbucks

Objectives: How should compensation supportbusiness strategy and be adaptive to the cultural

and regulatory environment?

Starbucks Objectives

Grow by making employees feel valued.

Recognize that every dollar earned passes through

employees hands.

Use pay, benefits, and opportunities for personal

development to help gain employee loyalty andbecome difficult to imitate.


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Example: The Strategic CompensationDecisions Facing Starbucks (cont.)

Alignment: How differently should the varioustypes and levels of skills be paid within the

organization?

Starbucks Approach

De-emphasize differences.

Use egalitarian pay structures, cross-train

employees to handle many jobs, and call

employees partners.


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Competitiveness: How should total compensationbe positioned against our competitors? What

forms of compensation should we use?

Starbucks Approach

Pay just slightly above other fast-food employers.

Provide health insurance and stock options for all

employees (including part-timers).

Give everyone a free pound of coffee every week.


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Contributions: Should pay increases be based onindividual and/or team performance, on

experience and/or continuous learning, on

improved skills, on changes in cost of living, on

personal needs, and/or on each business unitsperformance?

Starbucks Approach

Emphasize team performance and shareholder

returns.

For new managers in Beijing and Prague, provide

training opportunities in the U.S.


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Management: How open and transparent shouldpay decisions be to all employees? Who should

be involved in designing and managing the

system?

Starbucks Approach

As members of the Starbucks family, our

employees realize what is best for them.

Partners can and do get involved.


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1. Assess Total Compensation Implications Competitive Dynamics

Core Culture / Values

Social and Political Context

Employee / Union Needs

Other HR Systems

2. Fit Policy Decisions to Strategy

Objectives Contributions

Alignment Administration

Competitiveness

3. Implement Strategy

Design System to Translate Strategy

into Action

Choose Techniques to Fit Strategy

4. Reassess the Fit

Realign as Conditions Change

Realign as Strategy Changes

Key Steps to Formulating CompensationStrategy


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2 Approaches Contrasted

Best fit Do what works in a specific situation

Best practice Do what works best in other places


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Best Fit vs. Best Practices

Best Fit

Reflects companysstrategy and values

Responsive toemployees needs

Globally competitive

Provides companysome competitiveadvantage

Best Practices

Assumes a set ofbest-pay practices

exists

Practices can beapplied universallyacross all situations

compensation strategy.pptx

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