Ch 2 * Vanessa Flashcards
Strategic Perspective:
a focus on compensation decisions that help the organization gain and sustain competitive advantage.
Strategy:
the fundamental business decisions an org. has made to achieve its strategic obj
Competitive advantage:
a business practice/process that results in better perf. Than one’s competitors
why must the comp. system support the business strategy ?
The greater the alignment/fit between the org. & comp. system the more effective the org.
Tailor the compensation system to the strategy:
Strategy: innovation
Comp system: reward innovation in products/processes, market based pay, flexible- generic job description
Tailor the compensation system to the strategy:
Strategy: cost cutter
Comp system: focus on competitors labour cost, increase variable pay, emphasize productivity, focus on system control and work specifications
Tailor the compensation system to the strategy: customer focus
Comp system: customer satisfaction incentives, value of job/skills based on customer contract.
The pay model guides strategic pay decisions, these decisions form a pattern that become an….
organizations compensation strategy
Developing a total compensation strategy: four steps
- Assess total compensation implications - business strategy, competitive dynamics, hr strategy, culture/values, social and political context, employee/union needs, and other hr systems
- Decide on total compensation strategy: made up of the five decisions outlined in the pay model
- Implement the strategy
- Reassess the fit- must change to fit changing conditions, close the loop
- Not all compensation decisions are strategic or a source of competitive advantage
- Three test determine whether a pay strategy is a source of competitive advantage
- Is it aligned?
- Does it differentiate?
- Does it add value
Best fit
approach suggests that aligning compensation decisions with strategy will be effective
Best practice:
approach suggests that a set of practices exists that work will almost any strategy
• Consistent research evidence that the following practices do matter to the org. objectives:
- Internal alignment
- External competitiveness
- Employee contribution
- Managing compensation
- Compensation strategy
T/F Studies have shown that performance based pay and stock options grants may be example of best practices
True, however some studies suggest that performance based pay works best when the org. is performing well
Performance pay Upward momentum virtuous circle
a. Organization performance increasing
b. Ownership culture
c. Risk balance
d. Pay for performance increase (back to a)
