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
Strategy
Innovator:
Increase Product
Complexity and
Shorten Product
Life Cycle
Cost Cutter:
Focus on
Efficiency
Business
Response
• Product
Leadership
• Shift to Mass
HR Program
Alignment
• Committed to
Agile, Risk Taking,
Innovative People
Compensation
System
• Reward Innovation
in Products and
Processes
Customization and
Innovation
• Market-Based Pay
• Cycle Time
Job Descriptions
• Operational
Excellence
• Flexible – Generic
• Do More With Less
• Pursue Cost-
effective Solutions
• Focus on
Competitors’ Labor
Costs
• Increase Variable
Pay
• Emphasize
Productivity
• Focus on System
Control and Work
Specifications
Customer
Focused:
Increase
Customer
Expectations
• Customer Intimacy
• Deliver Solutions to
Customers
• Speed to Market
• Delight Customer,
Exceed
Expectations
• Customer
Satisfaction
Incentives
• Value of Job and
Skills Based on
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
• Realign as Conditions Change
• Realign as Strategy Changes
• Objectives
• Alignment
• Competitiveness
3. Implement Strategy
• Design System to Translate Strategy
into Action
• Choose Techniques to Fit Strategy
• Contributions
• Administration
Sources of Competitive Advantage
• Three tests determine if a pay strategy is a
source of advantage
– Is it aligned?
– Does it differentiate?
– Does it add value?
Which
hat is
unique?
Best Fit vs. Best Practices
Best Fit
Best Practices
• If design of pay system • Assumptions
– Reflects company’s
strategy and values
– A set of best-pay
practices exists
– Is responsive to
employees’ needs and
– Practices can be applied
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
unit’s performance?
• Management: How open and transparent should pay decisions be to all
employees? Who should be involved in designing and managing the
system?