STRATEGIC COMPENSATION
A Human Resource
Management Approach
Chapter 1
Strategic Compensation: A
Component of Human
Resource Systems
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Prepared by David Oakes
What Is Compensation
 Compensation represents the
rewards employees receive for
performing their job, are either:
 Intrinsic
 Extrinsic
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5 Core Job Dimensions
 Skill variety
 Task identity
 Task significance
 Autonomy
 Feedback
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Elements of Core Compensation
 Base Pay
Hourly pay
Annual salary
 Base pay adjustments
COLAs
Merit pay
Pay-for-knowledge
Skill-based pay
Incentive pay
Seniority pay
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Four Compensable Factors
 An employee’s skill level
 An employee’s effort
 An employee’s level of responsibility
 The severity of the working conditions
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Legally-Required Benefits




Federal Legislation Designed to:
Promote worker safety and health
Maintain family income
Assist families in crisis
Provide assistance in case of
 Disability
 Unemployment
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Discretionary Benefits
Three Broad Categories
 Protection programs
 Pay -for-time-not-worked
 Services
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Compensation Benefits Costs
Benefit
W.C.
$/%
B.C.
$/%
Service
$/%
Total
28.02/100
20.41/100
13.09/100
Base Pay
20.57/73.4
14.14/69.3
9.60/73.3
Dscry
5.37/19.6
4.30/21.0
2.29/17.5
LRBs
1.94/6.9
1.95/9.6
1.19/9.1
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Compensation Costs
TOTAL
BASE
PAY
DISCRY
BENEFIT
LRB
ALL
$25.75
$18.07
$5.61
$2.07
MGMT /
PROFL
$41.91
$30.11
$9.81
$2.79
SALES/
OFFICE
$19.39
$13.96
$3.86
$1.57
SERVICE
$14.26
$10.23
$2.68
$1.35
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Strategic Activities
 Strategic decisions - Guide the activities of
companies in the market
 Strategic management - Entails judgments
that direct a company toward achieving
specific goals
 Strategic planning - Supports business
objectives
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Competitive Strategy
 The planned use of company resources
 2+ years time span
 Choices
 Lowest cost strategy
 Differentiation strategy
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Competitive Strategy Choices
 Lowest Cost: Focus on being lowest cost
producer/ seller of goods or services
 Differentiation: Focus on offering unique
goods or services
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Lowest-Cost Strategy
Effective when Jobs
 Include predictable behaviors
 Have a short-term focus
 Require autonomous activity
 Focus on quantity of output
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Differentiation Strategy
Effective when Jobs:
 Require highly creative behaviors
 Have a long-term focus
 Demand cooperation & independence
 Involve risk-taking
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Human Resources Responsibilities
 Recruitment
 Career development
 Selection
 Labor- management
relations
 Performance
appraisal
 Training
 Employment termination
 Insuring legal compliance
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Employment Termination

Two Types:
Involuntary
 Terminated
 Laid - off

Voluntary
 Quit
 Retired
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Legislation Themes
 Income continuity, safety work hours
 Pay discrimination
 Meeting disabled & family needs
 Prevailing wage
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Employment Legislation







Davis – Bacon Act
Fair Labor Standards Act
Equal Pay Act
Civil Rights Act
Pregnancy Discrimination Act
Americans with Disabilities Act
Family and Medical Leave Act
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Compensation Goals
 Internal consistency
 Market competitiveness
 Recognizing individual efforts
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Internal Consistency
Achieved when the value of each job is clearly
defined
 Represents:
 Job structure
 Hierarchy
 Achieved using:
 Job analysis
 Job evaluation
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Market Competitiveness
 Compensation policies that fit with business
objectives
 Vital in attracting and retaining employees
 Are based on:
 Strategic analyses
 Compensation surveys
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Individual Contributions
 Pay Structures: Pay is determined by
employee’s credentials, job knowledge, and
job performance
 Pay Grades: Based on compensable
factors and value
 Pay Ranges: Builds on grades, uses
midpoints, minimums, and maximums
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Stakeholders
Individuals or entities directly affected by
compensation practices, like
 Employees
 Line managers
 Executives
 Unions
 U.S. government
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