Chapter 2: Stategy & the Totality of Decisions Flashcards
“ . . .the greater the _____, or _____, between the organization and the ________ system, the more _____ the organization”.
The greater the alignment or fit, between the organization and the pay system, the more effective the organization.
Strategies can ____ within an industry and even within a single organization (p.43)
Vary
Offering a base comp + stock vs. offering better work/life balance, 35-hour workweek, free childcare
Varience in strategic perspectives among companies in different industries and even among companies in the same industry.
List (and describe) the four key steps in formulating a total compensation strategy, Exhibit 2.6 (pp.50-54). Note: While the exam will cover all four steps from Exhibit 2.6, Steps 1 and 2 of Exhibit 2.6 are central to the compensation project for this course.
AMIR= Assess, Map, Implement, Reassess
Step 1: Asses Total Compensation Implications (6): (By Having Culture People Eat Unicorns)
* Business Strategy & Competitive Dynamics – Understand the Business: understand the industry and how the organization plans to compete in that industry. Focus on what is important today and in the future.
* HR Strategy: Pay as a supporting player or catalyst for change. A decision about the prominence of pay in the HR strategy is required. Can be supporting players (high-performance approach) or being a catalyst for change.
* *Culture/Values: *Pay system reflects the values that guide the employer’s behavior and underlie its treatment of its employees. Pay system mirrors the company’s image and reputation
* Social and Political Context: Context refers to legal and regulatory requirements, cultural differences, changing workforce demographics, expectations and the like. Govt’s are a major player, lobbying can be a part of the pay strategy
* Employee Preference: Employees differ. Major challenge is how to better satisfy individual needs and preferences
* Union Preferences: US less than 10%, the influence on pay systems is still significant. Unions’ preference for different forms of pay and their concern with job security affect pay strategy.
Step 2: Map a Total Compensation Strategy
O.I.E.E.M
* Provides a visual reference. Useful in analyzing a comp strategy that can be more clearly understood by employees. Framework and guidance.
* Objectives: Prominence is the measurement of how important total compensation is in the overall HR strategy. Is it a catalyst, playing a lead role? Or is it less important, to be a supporter?
* Internal Alignment – degree of internal hierarchy. Ex. How much does pay differ among job levels and how well does compensation support career growth?
* External Competitiveness – 1) How much are our competitors paying, 2) what forms of pay are they using?. Work/life balance via benefits and services is also part of external competitiveness. Competitive position
* Employee contributions
* Management – Ownership refers to the role non-HR managers play in making pay decisions. Transparency refers to openness and communication about pay. Each company’s profile on the strategy map reflects its main message or “pay brand”
Step 3 and 4: Implement and Reassess
3 – implement the strategy through the design and execution of the comp strategy. Into practice and people’s bank accounts
4 – Reassess and realign closes the loop. Pay strategy must change to fit the changing conditions. Continuously learn, adapt, and improve.
What three tests help determine whether a pay strategy is a source of advantage (p.57)? Make sure you can not only list but also describe each test.
ADVantage -> ADV
- Is it aligned?
* Aligns with business strategy, aligns externally with the economic and sociopolitical conditions, and aligns internally with the overall HR system. - Does it differentiate?
* If the pay system is relatively easy to copy for a competitor probably not.
* Are they difficult to imitate? Strategy is woven into the fabric of the company’s overall HR strategy. Better! Weaving the fabric helps differentiate.
* The way the programs fit together and fit in the overall organization is hard to copy. - Does it add value?
* Comp largest controllable expense.
* Looked at as an investment, what is the return on those investments and how do you measure?
* Implies “human capital” – dehumanizing, diminishes treating employees fairly
Manager’s pay systems
Managers pay systems-> align with the org’s business strategy. Dif. in a firm’s business strategy = dif. In its HR strategy, including comp.
Innovator – stresses new products and short response time to market trends. Supporting comp approach places less stress on evaluating skills and jobs and more emphasis on incentives designed to encourage innovation. Differentiation strategy
Cost cutter’s – doing more with less, minimizing costs encouraging productivity increases and specify on how jobs should be performed. cost leadership strategy
Customer focused – stresses delighting customers and bases employee pay on how well they do this.
Reality is that most are a combination of cost cutting and innovation
