Total Strategic Compensation
Human Resource Management
What is “Total Strategic
Compensation”?

Intrinsic rewards
 Satisfaction
with the
job and work
 Challenge
 Skill variety
 Task significance
 Responsibility
 Pride in work

Extrinsic rewards
 Financial
 Nonfinancial
Positive relationships
 Pleasant working
conditions
 Activities provided by
the company

• Teams
• Social events
• Camaraderie
What is “Total Strategic
Compensation”?

Direct compensation
 All
monetary
compensation
Base salary
 Incentives, bonuses


Indirect compensation
 Benefits
Protection programs
 Pay for time not worked
 Employee services and
perquisites

 Recognition
programs
Service awards
 Others

Total Compensation Program
Objectives

Motivate employees
 Attract
them to the organization
 Retain competent and better performers
 Encourage low performers to leave
 Motivate other key behaviors that support
organizational goals
Which Key Behaviors?







Individual performance
Group/team performance
Organizational
performance
Creativity
Dependability
Problem solving
Flexibility








Entrepreneurism
Conformity
Cooperation
Sales
Supervision
Management
Performance of
undesirable work
Others
Total Compensation Program
Objectives

Support the organization
 Attaining
strategic goals
 Supporting cultural change
 Managing highly flexible environments
 Supporting new management strategies
 Meeting organizational needs as well as those
of the individual business unit
Total Compensation Program
Objectives

Administratively sound
 Flexibility
in rewarding diverse job and work
types
 Easily communicated to a variety of employees
 Complies with legislation and regulations
 Adaptable when components change, such as
benefits
Total Compensation Program
Objectives

Cost effectiveness
 Trend
to lower fixed costs of compensation
 Tie increases in compensation to achievement
of organizational goals
 Tie increases to profitability
 Maximize tax savings
 Many
benefit expenditures are tax-deductible
 Section 125 and 401(k) plans allow tax savings for
the employee
Pay: Direct Compensation

Base compensation




Traditional salary grades
Broadbanding
“All-salaried workforce”
“Hierarchical” versus
“egalitarian”

“Nontraditional” pay plans







Individual
incentives/bonuses
Group/team
incentives/bonuses
Organization-wide
incentives/bonuses
“Pay at risk”
Skill-based pay
Ownership plans (ESOPs)
Competency-based pay
Base Compensation Components

External competitiveness


Internal equity


Job evaluation
Individual equity


Market analysis
Well-designed incentive or
merit programs
Administrative policies
and procedures
External Competitiveness
Establishes the value of the job on the
market
 Must understand the job

 Accurate
job analysis
 Job description

Must define the relevant labor market
 “Who
is the competition for incumbents for this
job?”

Salary data are gathered accordingly
Internal Equity

Established through job evaluation
 Measures
the relative value of the job to the
organization, based on its values
 Measures the worth of the job, not the
incumbent
 Necessary when market data are not available
for all jobs
 Communicates management’s intention to be
fair
Job Evaluation

Many different types
 Slotting
 Point-factor

job evaluation
Currently there is a trend toward less
emphasis on point-factor job evaluation
 Increased
emphasis on competitiveness
 New management strategies de-emphasize
status and hierarchy
Point Factor Job Evaluation

“Compensable factors” are
identified

By top management
Based on strategy, goals,
mission and climate of the
organization
Older systems used 8 to 10;
now more often 4 to 6





Factors are weighted
based on their relative
value


A measuring device using
these factors is created
Jobs are analyzed and
compared to this
“yardstick”
Thorough “quality
control” is done
End product is an array of
jobs, from the most to
least important in value
Individual Equity

Am I being rewarded fairly for
 The
amount of job-related education I have
 The number of years of job-related experience I
have
 My level of performance relative to others
 How hard I work
 The value of what I believe my services to the
organization to be
 Other issues that may be relevant
Individual Equity

Established through
 Fair
and accurate performance appraisal
systems that link performance to pay
 Well-designed incentive systems that link
accomplishment of goals and performance to
bonuses, stock options, profit sharing, etc.

Critical for motivation
 To
remain with the organization
 To perform at high capacity
Administrative Policies
Ensure that compensation pays people for
what we want them to do
 Allocate resources fairly and consistently
 Consist of

 Salary
policy stating the total compensation
policy
 Salary structure
 Policies about how pay is changed
Salary Structures

Consider
 External
value (market analysis results)
 Internal value (job evaluation results)

Establishes “grades” and “ranges” that jobs
are placed in
 Represent
the organization’s policies of the
value of jobs
Types of Pay Increases
Cost of living allowances (COLA’s)
 Promotional increases
 Pay increases within the range:

 Merit
pay
 “Pay
 Step
for performance”
pay
 Pay
for seniority
Traditional Merit Pay Program






Rewards employees for performance
Provides the mechanism to increase base salary
Usually combines performance level and position
within the grade to determine the salary increase
Can be quite effective if designed and
implemented properly
Very difficult to implement properly
Often the problem is measuring performance
New Ways to Pay People




Broadbanding
Skill- or knowledgebased pay
Competency-based
pay
Bonuses and other
incentives
 Individual
 Group
or team
 Entire organization
Broadbanding






Collapses many grades into
fewer “broad bands”
Useful when there are few
management levels
Useful for dual-career tracks
More flexibility in paying
individuals within bands
More flexibility in matching
individuals to market rates
Can be combined with a
traditional system
Skill or Knowledge -Based Pay






Usually about ten skill or
knowledge “units”
Encourages diversification,
reduces specialization
Flexibility to change product or
service emphasis
Increased work force stability,
greater job security
More satisfying jobs, fewer
absences, reduced labor costs
(?)
More costly in compensation
and training; can lead to abovemarket pay
Competency-Based Pay

Competencies: The set of
key skills, abilities,
knowledge or personal
characteristics that the
organization requires for it
to accomplish its strategic
goals.


All individuals within the
organization, to at least
some extent, will be
successful only to the
degree that they have
adequate levels of these
competencies
Competency performance
data are used for
development, pay,
promotions and training
decisions