Chapter Two
Strategic Compensation in Action:
Strategic Analysis and
Contextual Factors
ORGANIZATIONS OFTEN CLAIM THAT:
“People are our most important
asset”
But do people understand how the HR function
influences firm performance?
Are HR people seen as playing a key role in
implementing the organization’s strategy?
Does HR really matter?
1-3
What’s the perception of the HR function?
Let’s identify the events that most often trigger the
words “let’s ask human resources”:
Event
Perceived HR Role
Discipline problems
“The police”
Personal problems
“The counselor”
Company’s party
“The entertainer”
Bureaucratic obstacles “The aparatchik”
1-4
WHAT DOES HR STRATEGIC ALIGNMENT MEAN?
HR as an administrative function vs.
HR as a strategic partner capable of
enhancing the organization’s
performance
1-5
HR as an investment, not an expense
•Conventional accounting was created at a
time when tangible capital (financial &
physical) was the primary source of profits.
•Today: Intangibles such as human capital are
the primary source of profits.
1-8
Strategic Compensation
•Alignment of HR systems with the company’s
strategy
•How can compensation (and other reward systems)
play a role in executing the organization’s vision &
strategy?
1-7
Strategic Results
What does strategic alignment mean?
Compensation
alignment
+
_
_
Behaviors
+
1-17
Strategy Theories
Theory
Best practices
Primary
Compensation
mechanism
implications
Jump on the
Imitationbandwagon… (stock
benchmarking options, skill-based
pay, other fads)
Contingency
Environmental
scanning
Resource-based Competitive
advantage
Align compensation
with environmental
threats and
opportunities
Compensation for
differentiation and
unique skills
Elements of Competitive Strategy
Organization Competitive Barriers Easy to
Suitable
advantage of entry? replicate? rewards
system?
Compensation Policies & Strategic Mandates
Policy
Strategy
Lead (how much?)
5, 10, 15%?
Differentiation
Match
Differentiation
Lag (how much?)
Cost
10
Table 2-1
NAICS Sectors (1 of 2)
Code
NAICS Sectors
11
Agriculture, Forestry, and Hunting
21
Mining
22
Utilities
23
Construction
31-33
Manufacturing
42
Wholesale Trade
44-45
Retail Trade
48-49
Transportation and Warehousing
51
Information
52
Finance and Insurance
Table 2-1
NAICS Sectors (2 of 2)
Code
NAICS Sectors
53
Real Estate and Rental and Leasing
54
Professional, Scientific, and Technical Services
55
Management of Companies and Enterprises
56
Administrative and Support and Waste
Management and Remediation Services
61
Education Services
62
Health Care and Social Assistance
71
Arts, Entertainment, and Recreation
72
Accommodation and Food Services
81
Other Services (except Public Administration)
92
Public Administration
Figure 2-1
NAICS Code Elements
NAICS Code 33461
3
3
4
Sector:
Manufacturing
Subsector:
Computer & Electronic Product Mfg.
Industry Group:
Mfg. & Reproduction of Magnetic and Optical Media
Industry:
For example, Manufacture of Blank Video and Audio Tapes
6
1
Table 2-2
Influences on Competitive Strategy (1 of 2)


National Culture
» Power distance
» Individualism-collectivism
» Uncertainty avoidance
» Masculinity-femininity
Organizational Culture
» Traditional organizational hierarchy
» Flatter organizational structures
» Team orientation
Table 2-2
Influences on Competitive Strategy (2 of 2)

Organizational and Product Life Cycle
» Growth
» Maturity
» Decline