chapter 2 - the totality of decisions

Question 1

Exhibit 2.2: Strategic Choices

Answer 1

Strategy - the fundamental directions that an organization chooses

A strategic perspective on compensation means aligning the compensation systems to support the organization’s ability to gain and sustain competitive advantage

Question 2

Exhibit 2.2: Strategic Choices image

Answer 2

corporate objectives
I
business unit strategies
I
HR strategies
I
social/competitive/regulatory environment — strategic compensation decisions
I
compensation systems
I
employee attitudes and behaviors
I
competitive advantage

Question 3

a strategic perspective on compensation means

Answer 3

aligning the compensation systems to support the organization’s ability to gain and sustain competitive advantage

Question 4

Matching Business Strategy and Pay Strategy

Answer 4

A firm must determine its own unique way of adding value by matching its business strategy and pay strategy
There is no one way or “formula” for pay strategies
Companies may have a blend of strategies – innovator, customer focus, and cost cutter

If an organization changes it business strategy, the pay systems should change
- A redesigned IBM focuses on high-growth, high-value segments of IT
- To support the new business strategy, the compensation strategy:
- Cut layers of management
- Redesigned jobs to build in flexibility
- Increased incentive pay to differentiate on performance
- Kept a constant eye on costs

Question 5

Support Business Strategy

Answer 5

Pay systems should align with the organization’s business strategy
- Differences in the business strategy should be supported by differences in the HR strategy, including compensation

When business strategies change, it may be that pay systems should also change
- The theory is: the greater alignment between compensation systems and organizational strategy, the more effective or successful the organization

Question 6

Total compensation strategy

Answer 6

The pay map or strategy becomes the “Pay Brand” of the company – what’s SAS’s, what’s Microsoft’s??

Question 7

Virtuous and vicious circles

Answer 7

Research concluded:

• How you pay matters as much as how much you pay
• Performance-based pay that shares success with employees improves attitudes, behaviors, performance, especially when combined with other “high-performance” practices (like selective hiring, training, etc.)
• When employees receive returns related to their performance, change their behavior & act like owners
• When organizational performance declines, performance based pay plans do not pay off, causing potentially negative effects
• Unless increased risks are offset by larger returns, the risk return imbalance will reinforce declining employee attitudes and speed the downward spiral