What Is the Strategic Perspective?

The strategic perspective

involves thinking about
how pay can assist in
achieving organization
success, while not being
fixated on pay techniques.
 Strategic Alignment

VISION/MISSION
CORE BELIEFS
OBJECTIVES
BUSINESS STRATEGY

COMPENSATION
SYSTEM

PERFORMANCE
Generic Business-level Strategies

Innovator

Cost Cutter

Customer Focused
 Exhibit 2.4: Tailor the Compensation System to the Strategy
Business HR Program Compensation
Strategy
Response Alignment System

Innovator: Product Committed to Reward Innovation

Leadership Agile, Risk Taking, in Products and
Increase Product Innovative People Processes
Complexity and Shift to Mass
Shorten Product Customization and Market-Based Pay
Life Cycle Innovation
Flexible Generic
Cycle Time Job Descriptions

Focus on
Operational Do More With Less Competitors Labor
Cost Cutter: Costs
Excellence
Focus on Increase Variable
Efficiency Pursue Cost- Pay
effective Solutions Emphasize
Productivity
Focus on System
Control and Work
Specifications

Customer
Customer Customer Intimacy Delight Customer,
Satisfaction
Focused: Exceed Incentives
Deliver Solutions to
Expectations
Increase Customers Value of Job and
Customer Skills Based on
Speed to Market
Expectations Customer Contact
 Which Pay Decisions Are Strategic?

Objectives

Alignment

Competitiveness

Contributions

Management
 Exhibit 2.5: Key Steps to Formulate
a Compensation Strategy
1. Assess Total Compensation Implications
Competitive Dynamics
Core Culture / Values
Social and Political Context
Employee / Union Needs
Other HR Systems

2. Fit Policy Decisions to Strategy

4. Reassess the Fit
Objectives Contributions
Realign as Conditions Change
Alignment Administration
Realign as Strategy Changes
Competitiveness

3. Implement Strategy
Design System to Translate Strategy
into Action
Choose Techniques to Fit Strategy
 Sources of Competitive Advantage

Three tests determine if a pay strategy is a

source of advantage

Is it aligned?
Which
hat is
unique?
Does it differentiate?

Does it add value?

 Best Fit vs. Best Practices
Best Fit Best Practices

If design of pay system Assumptions

Reflects companys A set of best-pay
strategy and values practices exists

Is responsive to Practices can be applied

employees needs and universally across all
situations
Is globally competitive

Company is more likely to

achieve competitive
advantage
 Example: Company XYZ
Objectives: How should compensation support business strategy and be
adaptive to the cultural and regulatory environment?
Alignment: How differently should the various types and levels of skills be
paid within the organization?
Competitiveness: How should total compensation be positioned against
our competitors? What forms of compensation should we use?
Contributions: Should pay increases be based on individual and/or team
performance, on experience and/or continuous learning, on improved skills,
on changes in cost of living, on personal needs, and/or on each business
units performance?
Management: How open and transparent should pay decisions be to all
employees? Who should be involved in designing and managing the
system?