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Strategy
A fundamental business decision that an organization has made in order to achieve its strategic objectives e.g., what business to be in, how to gain competitive advantage The greater the alignment, or fit, between the organizational strategy and the compensation system, the more effective the organization
2-2 2010 McGraw Hill Ryerson
Objectives
Emphasis on innovation Commitment to cost containment Recognize contributions Attract and reward the best
Focus on customers Fully present at work and in personal lives Recognize personal accomplishment and share success Attract and engage top talent Control costs
Reflect job responsibilities Support promotional growth opportunities Foster team culture
2-3
Internal Alignment
Management
Strategic Choices
Corporate objectives, strategic plans, vision, and values
Business unit strategies HR strategies Strategic compensation decisions Compensation systems Employee attitudes and behaviours Competitive advantage
2-5 2010 McGraw Hill Ryerson
3. Implement Strategy
Design System to Translate Strategy into Action Choose Techniques to Fit Strategy
2-7 2010 McGraw Hill Ryerson
Competitive Advantage
Three tests to assess competitive advantage of a strategy:
1. Does the pay strategy align with the business strategy, economic and sociopolitical conditions, and the overall HR system? 2. Is the pay strategy different and difficult to imitate? 3. Does the pay strategy add value by providing a return on investment in compensation?
2-8 2010 McGraw Hill Ryerson
Conclusion
Managing total compensation strategically means aligning compensation and business strategies The three tests for whether pay strategy provides competitive advantage are: (1) does it align?; (2) does it differentiate?; and (3) does it add value? The four-step process to develop a compensation strategy is:
1. 2. 3. 4. assess environmental conditions decide on the best strategic choices implement the strategy, and reassess the fit
2-10 2010 McGraw Hill Ryerson