Module 3

Question 1

Compensation Strategies require decisions that are: (in opposition to what?)

Answer 1

> that are ongoing as opposed to being static and fixed.

Question 2

There is a relationship between strategy and what?

Answer 2

> There is a relationship between strategy and competitive advantage.

Question 3

What is strategy?

Answer 3

> refers to fundamental business decisions that an organization makes in order to achieve its strategic objectives, such as what business to be in and how to obtain competitive advantage.

Question 4

What is competitive Advantage?

Answer 4

> Competitive Advantage is a business practice or process that results in better performance than the competition. It should support Business Strategy and HR Strategy.

Question 5

What compensation systems are link to HR strategy?

Answer 5

> compensation systems including recruiting and selecting, retraining, rewarding, compensating and motivating are all linked to the HR strategy.

Question 6

What should competitive advantage always support? What strategies follow upon establishing competitive advantage.

Answer 6

> It should always support business strategy since the primary reason for a business strategy is to obtain competitive advantage in any case; once the business strategy is set, the HR strategy can follow.

Question 7

The Pay Model can be used to assess the strategic decisions along what 5 dimensions:

Answer 7

1) Objectives - How should compensation support the business strategy?

2) Internal Equity - How differently should the different types of skill levels and work be paid in the organization?

3) External Equity. How should total compensation be positioned against competitors?

4) Employee contributions - should pay increases be based on individual or team performance, or experience and or continuous learning, on improved skills or COLA?

5) Management - How open and transparent should pay decisions be to all employees?

Question 8

Steps to Develop a Total Compensation Strategy - what is step 1?

Answer 8

Assess total Compensation Implications including business strategy and competitive dynamics, HR strategy, culture/values, social and political context, employee preferences, and union preferences.

Question 9

Assess Total Compensation Implications - Business Strategy and Competitive Dynamics

Answer 9

> Organizations need to understand the industry in which they operate and with which they compete. Competitive dynamics can be assessed globally; pay comparisons between countries can be difficult because of different practices and priorities.

Question 10

Assess Total Compensation Implications - HR strategy

Answer 10

> Compensation must fit the HR Strategy so functions like performance systems support the HRM strategy. A flexible compensation system can be used to activate changes in the HR strategy.

Question 11

Assess Total Compensation Implications - Culture/Values

Answer 11

> Pay systems need to be consistent with the overall philosophy of the company and the way it does business and the way it treats employees in the organization.

Question 12

Assess Total Compensation Implications - Social and Political Context

Answer 12

> Due to legal and regulatory requirements, cultural differences and changing work force demographics, expectations take on new meaning in a global context.

Question 13

Assess Total Compensation Implications - Employee Preferences

Answer 13

> Employee preferences are different; to the extent possible, pay systems can be designed to reflect these differences by increasing flexibility in the system.

Question 14

Assess Total Compensation Implications - union preferences

Answer 14

> The influences of unions in Canada and Europe are major. Organizations must consider union wishes and work to design a pay system that will accomplish its goals while satisfying the union.

Question 15

Steps to Develop a Total Compensation Strategy - what is step 2?

Answer 15

Map the Strategy

Question 16

Steps to Develop a Total Compensation Strategy - what is step 3?

Answer 16

Implement the Strategy

Question 17

Steps to Develop a Total Compensation Strategy - what is step 4?

Answer 17

Assess and realign the Strategy to Insure Achievement of Objectives

Question 18

Four Decisions are outlined in the Pay Model:

Answer 18

1) Set Objectives

2) Policy Choices: internal equity; external equity, employee contributions and management

3) Implement the Strategy: design and execution of the compensation system

4) Reassess the Fit: from changing conditions and realigns the strategy to close the loop; allow the opportunity for continuous improvement.

Question 19

The three tests to determine if the pay strategy is a source of competitive advantage are:

Answer 19

1) Is it Aligned? Is it aligned with the business strategy, externally with the economic and political conditions and internally with the overall HR system?

2) Does it Differentiate? Differentiating is how the pay system is different from others. Competitive advantage strengthens if the pay system is unique and can’t be copied.

3) Does it Add Value? Adding value is finding ways to calculate the ROI from incentives, benefits and base pay. Allows focus on human capital as the recipient of company expenditures.

Question 20

The challenge in any organization is to design what?

Answer 20

> The challenge in any organization is to design the fit with the environment, business strategy, and pay plan. The better the fit, the greater the competitive advantage.

Question 21

The Best Practices perspective suggests what?

Answer 21

> The Best Practices perspective suggests that there is one best pay practice that can be applied universally across situations and strategies attracting superior employees who then create a winning strategy.

Question 22

Pay-Satisfaction Model: Lawler (1971) theorized that satisfaction with pay does what?

Answer 22

> Lawler (1971) theorized that satisfaction with pay greatly impacts an employee’s work attitude.

Question 23

Lawler developed a model of pay-satisfaction that states that pay-satisfaction is dependent on two perceptions: what are they?

Answer 23

1) The perceived amount of pay that should be received

2) The perceived amount of pay received.

Question 24

The perception of amount of pay received is based on what? (Lawler’s model of pay?)

Answer 24

> The perception of amount of pay received is based on wage history, actual pay rate and the perceived pay of a comparison.

Question 25

Was Lawlers model reliable?

Answer 25

> However, in subsequent testing of variables affecting satisfaction, Lawler’s Pay-Satisfaction Model failed to be a consistent predictor of pay satisfaction.

Question 26

A strategic perspective focuses on what?

Answer 26

> focuses on those compensation decisions that help the organization gain and sustain competitive advantage.

Question 27

The greater the alignment, or fit, between the organizational strategy
and the compensation system, what becomes more effective?

Answer 27

> the more effective the organization.

Question 28

Different industries may have different pay strategies, but there can be:

Answer 28

 different strategies within the same industry, e.g. Google, Microsoft,
and SAS;

 different strategies within the same company, e.g. SK Holdings.

Question 29

What are some examples of different compensation strategies?

Answer 29

> objectives,

> internal and external equity,

> employee contributions and

> management.

Question 30

What questions need to be asked when comparing strategy and competitive advantage?

Answer 30

> What business should we be in?

> How should we gain and sustain competitive advantage in this business?

> How should HR help us win?

> How should total compensation help us win?

Question 31

The greater the alignment, or fit, between the organizational strategy
and the compensation system what occurs?

Answer 31

> the more effective the organization.

Question 32

What is compensation for an innovator?

Answer 32

> A supporting compensation strategy for an innovator, places more
emphasis on incentives encouraging innovations

Question 33

What is compensation for a cost cutter?

Answer 33

Compensation in a cost cutter strategy encourages productivity
increases.

Question 34

What is compensation when customer-focused?

Answer 34

> The customer-focused strategy uses customer satisfaction
incentives in the compensation strategy

Question 35

When business strategies change, what should also change?

Answer 35

> When business strategies change, pay systems should also change

Question 36

Compensation is key to what?

Answer 36

> is key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy.

Question 37

Provide an overview for step 1 - Assess total Compensation implications:

Answer 37

 Business strategy and competitive dynamics – understand the
business.

 HR strategy – pay as a supporting player or catalyst for change?

 Culture/values – pay system mirror image and reputation..

 Social and political context – affects compensation choices.

 Employee preferences – wide-ranging, choice is good, up to a certain
point.

 Union preferences – adapt pay strategies to union-management
relationship.

Question 38

Provide an overview for step 2 - map a total compensation strategy:

Answer 38

 Map a total compensation strategy using the five elements of the
pay model.

 Decisions in the pay model work in concert and the totality of
decisions form the compensation strategy.

Question 39

Provide a breakdown for whole foods strategy:

Answer 39

Objectives: increase shareholder value, satisfy and delight customers,
and seek employees who will help the company make money.

Internal alignment: store is organized into self-managed teams,
executive salaries capped at 19X average full-time employee pay, and
all full-time employees qualify for stock options.

External competitiveness: offers a unique total compensation package
compared to competitors.

Employee contributions: uses a shared fate technique and monthly
performance affects team pay.

Management: uses a “no-secrets” management technique making
salaries known to all and a “you decide” technique allowing employees
to chose their health insurance.

Question 40

provide an overview for steps 3 and 4 Implement and Reassess:

Answer 40

 Step 3 involves implementing the strategy through the design and
execution of the compensation system.

 Step 4 recognizes that the strategy must change to fit changing
conditions, and involves periodic reassessment. Periodic
reassessment is needed to continuously learn, adapt, and
improve.

Question 41

What is the best fit approach:

Answer 41

> approach suggests that a company is more likely to achieve competitive advantage if pay practices are aligned with
business and overall HR strategies. reflects the company’s strategies and values.

Question 42

What is the best practice approach?

Answer 42

> pproach suggests that there exists a set of best-pay practices, which can be applied universally across all situations,
results in better performance with almost any business strategy.

Question 43

Guidance from the Evidence - describe this for each objective.

Answer 43

 Internal alignment: Both small and large internal pay differences can be a best practice.

 External competitiveness: Paying higher than the average paid by competitors can affect results.

 Employee contributions: Performance-based pay can affect results.

 Managing compensation: All dimensions of the pay strategy need
to be considered.

 Compensation strategy: Embedding compensation strategy within
the broader HR strategy affects results.

Question 44

Performance-based pay works best when:

Answer 44

> when there is shared success.

> Shared success improves employee attitudes, behaviors, and performance when coupled with other “high performance” practices.