Compensation Strategy.pptx
Transcript of Compensation Strategy.pptx
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Formation and Principles
Compensation Strategy
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Compensation strategies Organizations
should consider
Relating job worth to differences in job requirements. Recognizing the worth and value of employee knowledge
and skills.
Rewarding employee contributions and the resultsachieved.
Promoting continued employee acquisition and upgradingof knowledge and skills.
Supporting team and work unit cooperative efforts
Designing compensation plans that successfully competewithin established labor markets
Aligning compensation of all the employees with theobjectives and goals of the organization.
Providing a compensation package that enhancescurrent lifestyles and provides long term protection foremployees and their dependents.
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HIGH PAY LOW COMMITMENT
Hired Guns(Stockbrokers)
HIGH PAY HIGH COMMITMENT
Cult - like(Microsoft)
LOW PAY LOW COMMITMENT
Workers as Commodity(Employers of Migrant
Farm Workers)
LOW PAY HIGH COMMITMENT
Family(Starbucks)L
ow
TRANSACT
IONAL
Low HighRELATIONAL
Types of Employment Relationships
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Exhibit 2.2: Strategic Choices
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Tailor the Compensation System to the Strategy
Strategy
Business
ResponseHR Program
Alignment
Compensation
System
Innovator:
Increase Product
Complexity and
Shorten Product
Life Cycle
Cost Cutter:
Focus on
Efficiency
Customer
Focused:
Increase
Customer
Expectations
Product Leader
Shift to Mass
Customization and
Innovation
Cycle Time
Committed to
Agile, Risk Taking,
Innovative People
Reward Innovation
in Products and
Processes
Market-Based Pay
Flexible Generic
Job Descriptions
Operational
Excellence
Pursue Cost-
effective Solutions
Do More With Less Focus on LaborCosts
Increase incentives
Productivity focus
System focus oncontrol and work
specifications
Customer Intimacy
Deliver Solutions to
Customers
Speed to Market
Delight Customer,
Exceed
Expectations
CustomerSatisfactionIncentives
Value of Job andSkills Based on
Customer Contact
C i i S C
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Competitive Strategy, Corporate
Policies, and Compensation
Aligning reward strategy to firms strategic aims.
Eg: IBM policies
Pay to Market
The company switched from its previous single pay plan (for non
sales employees) to different pay plans and merit budgets for
different job families (accountants, engineers, and so on). Thisenabled IBM to pay different job families in a more market
oriented way.
Fewer, broadband jobs
IBMs old system slotted IBMs jobs in to 24 narrow wage grades
Employees only did their job New policy slotted all jobs based on three factors skills,
leadership requirement and scope / impact).
In US the job grades dropped from 5,000 to 1200 and employees
had wider job duties.
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Let Managers manage
The previous compensation plan based raises on a
complex formula that linked performance appraisal
scores to salary increases measured in tenths of apercent.
The new system gives managers a budget and some
coaching to differentiate between their stars and
acceptable performers and provide pay differences
Incentivize Employees
The old policy used to give incentives to only Sales
employees, but the new policy makes a part of thesalary as incentives irrespective of the type of the job of
the employees.
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Example: The Strategic CompensationDecisions Facing Starbucks
Objectives: How should compensation supportbusiness strategy and be adaptive to the cultural
and regulatory environment?
Starbucks Objectives
Grow by making employees feel valued.
Recognize that every dollar earned passes through
employees hands.
Use pay, benefits, and opportunities for personal
development to help gain employee loyalty andbecome difficult to imitate.
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Example: The Strategic CompensationDecisions Facing Starbucks (cont.)
Alignment: How differently should the varioustypes and levels of skills be paid within the
organization?
Starbucks Approach
De-emphasize differences.
Use egalitarian pay structures, cross-train
employees to handle many jobs, and call
employees partners.
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Example: The Strategic CompensationDecisions Facing Starbucks (cont.)
Competitiveness: How should total compensationbe positioned against our competitors? What
forms of compensation should we use?
Starbucks Approach
Pay just slightly above other fast-food employers.
Provide health insurance and stock options for all
employees (including part-timers).
Give everyone a free pound of coffee every week.
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Example: The Strategic CompensationDecisions Facing Starbucks (cont.)
Contributions: Should pay increases be based onindividual 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 unitsperformance?
Starbucks Approach
Emphasize team performance and shareholder
returns.
For new managers in Beijing and Prague, provide
training opportunities in the U.S.
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Example: The Strategic CompensationDecisions Facing Starbucks (cont.)
Management: How open and transparent shouldpay decisions be to all employees? Who should
be involved in designing and managing the
system?
Starbucks Approach
As members of the Starbucks family, our
employees realize what is best for them.
Partners can and do get involved.
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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
Objectives Contributions
Alignment Administration
Competitiveness
3. Implement Strategy
Design System to Translate Strategy
into Action
Choose Techniques to Fit Strategy
4. Reassess the Fit
Realign as Conditions Change
Realign as Strategy Changes
Key Steps to Formulating CompensationStrategy
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2 Approaches Contrasted
Best fit Do what works in a specific situation
Best practice Do what works best in other places
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Best Fit vs. Best Practices
Best Fit
Reflects companysstrategy and values
Responsive toemployees needs
Globally competitive
Provides companysome competitiveadvantage
Best Practices
Assumes a set ofbest-pay practices
exists
Practices can beapplied universallyacross all situations