Compensation Strategy Ch.2 Flashcards
What does a strategic perspective focus on?
-Compensation decisions that help the organization gain/sustain competitive advantage
How do you create an effective organization?
Create higher alignment between the organizational strategy and the compensation system
3 Questions to determine organizational & compensation strategy:
1) What business should we be in?
2) How do we gain and sustain competitive advantage in this business?
3) How should compensation help gain competitive advantage?
How should compensation help gain competitive advantage?
- support business strategy - how the org will compete
- support HR strategy - how employees will be managed to execute the business strategy
Pay systems should align with the organization’s business strategy because…
The ultimate purpose of a business strategy is to gain and sustain competitive advantage
-when business strategies change, pay systems should also change
Why should pay systems align with hr strategy?
-it includes various systems (hiring, training, performance mgmt) that are designed to manage employees so that they will execute the business strategy
What are the steps in formulating a compensation strategy?
1) Assess total compensation implications
2) Map a total comp strategy
3) Implement Strategy
4) Reassess strategy
What are the 6 parts of assessing total compensation implications?
*career advancement and base pay seem to work best in most countries**
BHESCU
1) Business strategy & competitive dynamics (orgs need to understand the industry)
2) HR strategy (compensation must fit this)
3) Culture/Values (Pay systems need to fit org’s overall philosophy)
4) Social & Political Context (Legal & regulatory requirements, changing work force demographics, cultural differences)
5) employee preferences (pay systems can be designed to reflect employees’. differing preferences)
6) Union preferences (org should design a pay system that will accomplish their goals & still satisfy the union)
Causes of Reward A and hope for B
- fascination with an objective criterion
- overemphasis on highly visible behaviours
- hypocrisy: emphasis on morality or equity rather than efficiency
What do you use to decide on a total comp strategy?
- five decisions outlined in the pay model:
- set objectives
- specify 4 policy choices (ACCM)
What are the 3 tests of competitive advantage?
1) Is it aligned?
-is the comp strategy aligned with the business, hr
strategy, economic conditions, etc.
2) Does it differentiate?
-is the strategy different and difficult to imitate
-the alignment test helps ensure the differentiation test is passed
3) Does it add value?
-ROI? (implies that employees are human capital - dehumanizing)
What is the best fit approach?
company is more likely to achieve competitive advantage if pay practices are aligned with business and overall HR strategies and environmental factors
What is the best practices approach?
there exists a set of best-pay practices which can be applied universally across all situations
-attracts superior employees
What are virtuous circles?
- org with increasing profits can pay larger incentives (bonuses) which improves employee attitudes & work which improves overall organizational performance
- upward momentum, continuous improvement
What are vicious circles?
-when org performance declines (recession?), performance based pay plans don’t work, reinforces declining employee attitudes, affects organizational performance
