COMPENSATION STRATEGY

Four Policy Choices

Every employer must address the policy decisions.

GUIDELINES:
1. Internal Alignment
2. External Competitiveness
3. Employee Contributions
4. Management
Internal Alignment

 Refers to comparisons among jobs or skill

levels inside a single organization. Jobs and
people’s skills are compared in terms of their
relative contributions to the organization’s
business objectives.
 Example: programmer compare with system
analyst
 software engineer compare with software
architect
External Competitiveness

 Refers to pay comparisons with competitors.

 “How much do you wish to pay in
comparison to what other employers pay?”
 Some employers may set their pay levels
higher than their competition, hoping to
attract the best applicants.
Employee Contributions

 The emphasis to place on employee

contributions (or nature of pay mix) is an
important policy decision since it directly
affects employees attitudes and work
behaviors.
 What mix pay forms – base, incentives,
stock, benefits
Management

 Management means ensuring that the right

people get the right pay for achieving the
right objectives in the right way.
 The greatest system design is useless
without competent management.
SIMILARITIES AND DIFFERENCES
IN STRATEGIES

 Google
 Medtronic
 Merrill Lynch
 Strategies vary based on Objectives, Internal
Alignment, Externally Competitive and
Employee Contributions
Strategic Choices

 What business should we be in?

 (Corporate objectives, strategic plans, vision,
and values)
 How do we win competitive advantage?
 (Business unit strategies)
 How should HR help us win?
 (HR strategies)
Strategic Choices

 How should total compensation help us win?

 (Social, competitive, and regulatory
environment)
 (Strategic compensation decision)
 (Compensation systems)
 (Employee attitudes and behaviors)
 (Competitive advantage)
The Pay Model Guides Strategic
Pay Decisions

 1. Objectives
 2. Internal Alignment
 3. External Competitiveness
 4. Employee Contributions
 5. Management
Key Steps in Formulating a Total
Compensation Strategy

 1. Assess Total Compensation Implications

 - Business Strategy and Competitive
Dynamics
 - HR Strategy
 - Culture/Values
 - Social and Political Context
 - Employee/Union Needs
 - other HR systems
Key Steps in Formulating a Total
Compensation Strategy

 2. Map a Total Compensation Strategy

 - Objectives
 - Alignment
 - Competitiveness
 - Contributions
 - Management
Key Steps in Formulating a Total
Compensation Strategy

 3. Implement Strategy
 - Design System to Translate Strategy into
Action
 - Choose Techniques to Fit Strategy
Key Steps in Formulating a Total
Compensation Strategy

 4. Reassess
 - Realign as Conditions Change
 - Realign as Strategy Changes