Chapter 1: Strategic

Compensation
MGT 4543 Compensation Management
 Be prepared for class

Today, I will call on you for answers.

Borrow a book if you do not have one yet.

Please do NOT read from your book. We want to stay awake!

What if you did not prepare for todays class?

My best advice is to follow along, try to keep up, and THINK of a logical answer if you
are called on.

That is MUCH better than saying the dreaded, I dont know or I dont have a book
yet.
Opportunities to get involved
with HR professionals
MSU student chapter of SHRM
Sign up to be on the e-mail list if you are interested!
Exposure to HR professionals
Networking opportunities
Opportunities to learn more about HR

Golden Triangle Human Resource Association

http://gthra.shrm.org/
Dual student membership (if you attend GTHRA meetings)

Society for Human Resource Management (SHRM)

http://www.shrm.org/
Strategic Compensation

What is compensation?

Compare and contrast intrinsic and extrinsic compensation.

Explain core compensation and employee benefits.

Give examples of each.
Fixed
Pay

Variable
Pay
Strategic Compensation

What is a competitive business strategy?

What is a human resource strategy?

What is strategic compensation?

How are these three related?

Strategic Management & HRM
Competitive Strategic Choices

Cost leadership
What is cost leadership?
How do Ryanairs compensation practices help it achieve
its strategy?

Differentiation
What is differentiation?
Discuss why brand loyalty and research & development
frequently go hand-in-hand with differentiation.
 Competitive Strategic Choices

Compensation professionals support strategic initiatives

through the design and implementation of compensation
systems.

For a lowest-cost strategy, compensation professionals

should focus on _______________________________.

Pay for differentiation differs because this strategy relies on

employee creativity and willingness to take _____________.

Differentiation strategies require longer ____________.

Building Blocks: Core Compensation &
Employee Benefits
Explain each:
Base pay

What are two ways base pay can be disbursed?

Compensable factors

COLAs
Building Blocks: Core Compensation &
Employee Benefits
Explain each:
Seniority pay

On what theory is seniority pay based?

Merit pay

Incentive pay (variable pay)

Building Blocks: Core Compensation &
Employee Benefits
Explain each:
Pay-for-knowledge
What type of workers are likely to receive this type of
pay?

Skill-based pay
What type of workers are likely to receive this type of
pay?
Building Blocks: Core Compensation &
Employee Benefits
How do discretionary benefits differ from legally required
benefits?

How did government legislation about wage levels

influence discretionary benefits?

What was the initial purpose of legally required benefits?

Give some examplesyour book has plenty!
Brief History of Compensation
Industrial revolution
Division of labor;
Change from work _________________ to _________________
Scientific management
Productivity measures
Piecework plans
Welfare practices & governmental regulation
Improving conditions for EEs (e.g., medical insurance for EEs)
Personnel management emerges
Competitive advantage
Employees viewed as a source of ___________________
Pay-for-knowledge, pay-for-skill
Emphasis on recruitment and retention
Pressure of globalized competition
Strategic Compensation

What does it mean for compensation systems to be

internally consistent?

Why is internal consistency in compensation important?

Strategic Compensation

Name and describe the two processes to achieve internal

consistency.

Market competitiveness in compensation: How is it

achieved? Why does it matter?
Strategic Compensation

Fill in the blank:

pay structures represent pay rate ____________ for
jobs of ___________ worth & the framework for
recognizing differences in employee ______________.

Explain each:
pay grades
pay ranges
 Pay Structure

$37,000
Y
= Pay Grade 3
S
a
l $32,000
$30,000
a P
r Pay Grade 2
y
a $27,000
y $25,000
Pay Grade 1
R
a
n $20,000
g
e
200-400 401-600 601-800
X = Job evaluation points
Fitting the Compensation Function in an
Organizations Structure
How does compensation fit with human resource practices
such as recruitment, relocation, and retention?

Form your answer by reading and thinking about the example in the book.
Stakeholders of the Compensation System

What stakeholders must a compensation system satisfy?

Why might satisfying various stakeholders be a challenge for

HR departments?