Supporting Business Objectives through Variable Pay Flashcards
Which of the following describes a purpose of variable pay?
A. To reward individuals for acquisition of new skills and competencies.
B. To ensure the individual’s value relative to the labor market.
C. To differentiate the pay of individuals who achieve results from those who do not.
D. To reward individuals for their sustained performance over time
C. To differentiate the pay of individuals who achieve results from those who do not
What business strategy often includes a combination of price, quality, dependability and ease of purchase that competitors cannot match?
Operational Excellence
Which of the following business objectives would relate most to a product/service leadership strategy? A. Improve operational efficiency. B. Time from innovation to market. C. Customer attraction and retention. D. Reduce costs.
B. Time from innovation to market
In which of the following stages of the business life cycle would an organization generally be focused on maintaining/increasing market share, improving productivity and reducing cost of sales? A. Start up. B. Growth. C. Mature. D. Decline
C. Mature
Which of the following business objectives would relate most to the start-up stage of a businesses life cycle? A. Maximize profits. B. Product Quality. C. Maintain/Increase market share D. Obtaining capital
D. Obtaining capital
What influences can variable pay provide in relation to organizational performance?
Focus, alignment, motivation and reinforcement
Fixed pay –
nondiscretionary compensation that does not regularly vary according to
performance or results achieved. Base salary or base hourly rate are primary examples.
Variable pay -
compensation that is discretionary or contingent on performance or results
achieved, and can be designed for any individual or combination of individuals (e.g., an entire
organization, business unit, division, department, location [site], workgroup or special team). It
is termed “variable” because the amount actually paid will vary based on whatever criteria the
organization chooses.
Primary Elements of Variable Pay
Variable pay rewards for accomplishments and results
• Based on organizational, group or individual results – aligns and focuses organizations,
business units, teams and individuals on the accomplishment of key goals and objectives,
assesses their performance, and rewards those who accomplish them
• Performance-based compensation – serves as a pay differentiator between those who
achieve results and those who do not
• Flexible and adaptable
Operational excellence – primarily a price / cost-based strategy
This strategy often includes a combination of price, quality, dependability and ease of
purchase that competitors cannot match. The corporate culture typically strives to minimize
waste and reward efficiency.
Product / service leadership – primarily an innovation-based strategy
This strategy focuses on innovation, product development and market exploitation. The
corporate culture encourages imagination and a mind-set driven by the prospect of creating
the future.
• Organizations that use this strategy offer products and services that expand performance
boundaries (the best products), leapfrog / replace technologies or products, create more /
better ideas and commercialize them faster than their competitors.
Customer intimacy – primarily a solutions-based strategy
This strategy focuses on creating results for carefully selected customers (making them
successful). The corporate culture encourages deep and lasting relationships with
customers.
• Organizations that use this strategy build bonds with targeted customers; they meet or
exceed customer needs to build customer loyalty.
Business strategy: operational excellence
- Product quality
- Operational efficiency improvement
- Process improvement
- Cost reduction
Business strategy: product / service leadership
- Market share / market penetration
- Product development
- Time from innovation to market
Business strategy: customer intimacy
- Customer opinion of products
- Product quality
- Customer retention
- Customer satisfaction
Start Up (business life cycle)
Start-up – The organization is new with little or no formal policies or procedures. The
organization’s focus is on obtaining capital, marketing products or services, initial sales growth
and cash conservation.
- Obtaining capital
- Cash conservation
- Develop brand awareness
- Develop marketing plan
Growth (business life cycle)
Growth – In this stage, the organization is highly focused on growing sales, increasing
distribution capability and determining how to efficiently produce products or services to meet
growing demand. Growth typically generates the need to begin standardizing procedures through
policy creation.
Production capability
• Market share / market penetration
• Sales volume / revenue growth
Mature (business life cycle)
Mature – The mature stage is characterized by a focus on maintaining / increasing market share,
improving productivity and otherwise reducing cost of sales. Improvements to products are more
evolutionary than revolutionary. The organization typically has higher levels of bureaucracy and
greater amounts of cash on hand than at other stages.
- Improve operational efficiency
- Stock price appreciation
- Maintain / increase market share
Decline (business life cycle)
Decline – At this point, the organization’s revenues are declining. It must decide whether to
reinvest in current products, create new products or maximize profits with current products as
long as possible.
- Maximize profits
- Extend product demand
- New product development
