Chap002 Narrative Slides
- 1. Chapter 2 Strategy: The Totality of Decisions
- 2. Exhibit 2.1: Three Compensation Strategies
- 3. Strategic Choices Strategy refers to the fundamental directions that an organization chooses Corporate level: “What business should we be in?” Business unit level: “How to gain and sustain competitive advantage?” Functional level: “How should total compensation help gain and sustain competitive advantage?” A strategic perspective focuses on those compensation choices that help the organization gain and sustain competitive advantage
- 4. Support Business Strategy Pay systems should align with the organization's business strategy Based on contingency notions Compensation systems can be tailored to: Innovator business strategy Cost cutter business strategy Customer-focused business strategy When business strategies change, pay systems should also change
- 5. Objectives Internal Alignment External Competitiveness Employee Contributions Management Five Strategic Guidelines for Compensation Choices
- 6. The Pay Model Guides Strategic Pay Decisions Decisions based on the five strategic compensation choices of the pay model, taken together, form a pattern that becomes an organization's compensation strategy Stated versus Unstated Strategies
- 7. Exhibit 2.5: Key Steps In Formulating a Total Compensation Strategy
- 8. Step 1: Assess Total Compensation Implications Competitive Dynamics – Understand the Business Changing customer needs Competitors’ actions Changing labor market conditions Changing Laws Globalization Competitive dynamics can be assessed globally
- 9. Step 1: Assess Total Compensation Implications (cont.) Culture/values A pay system reflects the values that guide an employer's behavior and underlie its treatment of employees Social and political context Context refers to legal and regulatory requirements, cultural differences, changing workforce, demographics, expectations etc. Affects compensation choices Lobbying is also part of compensation strategies
- 10. Step 1: Assess Total Compensation Implications (cont.) Employee preferences How to better satisfy individual needs and preferences Choice – Examples: Flexible benefits and choices Union preferences Pay strategies need to be adapted to the nature of the union-management relationship Unions' interests can differ Compensation deals with unions can be costly to change
- 11. Step 2: Map a Total Compensation Strategy Mapping is used in marketing to clarify and communicate a product's identity Offers picture of a company’s compensation strategy based on the five choices in the pay model Clarifies the message the company is trying to establish with its compensation system Maps do not tell which strategy is the “best”, providing rather framework and guidance
- 12. Exhibit 2.8: Contrasting Maps Of Microsoft And SAS
- 13. Steps 3 and 4: Implement and Reassess Step 3 Involves implementing strategy through the design and execution of compensation system Step 4 Reassess and realign, closes the loop and recognizes that the strategy must be changing to fit changing conditions Involves periodic reassessment
- 14. Sources of Competitive Advantage: Three Tests Three tests determine if a pay strategy is a source of advantage Is it aligned? Does it differentiate? Does it add value? Calculate the return on investment (ROI) Which hat is unique?