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Strategy The Totality of Decisions

This document discusses developing a total compensation strategy. It explains that a compensation strategy should align with and support the business and HR strategies. A four-step process is outlined for formulating a compensation strategy: 1) assess implications of various factors, 2) map a strategic plan, 3) implement the strategy, and 4) periodically reassess. A compensation strategy provides the most value when it differentiates the organization, adds value for employees and business, and is internally and externally aligned. Both "best practices" and ensuring the strategy is the "best fit" for the unique organization should be considered.

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Jerome Formalejo
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413 views25 pages

Strategy The Totality of Decisions

This document discusses developing a total compensation strategy. It explains that a compensation strategy should align with and support the business and HR strategies. A four-step process is outlined for formulating a compensation strategy: 1) assess implications of various factors, 2) map a strategic plan, 3) implement the strategy, and 4) periodically reassess. A compensation strategy provides the most value when it differentiates the organization, adds value for employees and business, and is internally and externally aligned. Both "best practices" and ensuring the strategy is the "best fit" for the unique organization should be considered.

Uploaded by

Jerome Formalejo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
  • Introduction: Presents the overall theme of the document, focusing on the concept of strategy as a comprehensive decision-making process.
  • Learning Objectives: Outlines the key learning objectives of the document, such as understanding strategic choices and supporting business strategies.
  • Similarities and Differences in Strategies: Explores the different strategies within organizations and compares them to understand strategic alignment and competitive advantage.
  • Strategic Choices: Focuses on the strategic decisions that organizations make to enhance competitiveness and strategic alignment.
  • Support Business Strategy: Discusses how businesses can align their strategies to enhance performance and competitive edge.
  • Support HR Strategy: Covers the role of HR in fostering strategies that support overall business objectives.
  • The Pay Model Guides Strategic Pay Decisions: Describes how pay models can be designed to support strategic objectives and drive business success.
  • Key Steps in Formulating a Total Compensation Strategy: Details the steps and considerations in developing a comprehensive compensation strategy aligned with business goals.
  • Sources of Competitive Advantage: Three Tests: Analyzes the sources of competitive advantage through strategic alignment and impact on ROI.
  • Best Practices versus Best Fit: Compares the concepts of best practices with best fit approaches in achieving competitive advantage.
  • Guidance from the Evidence: Provides evidence-based insights on alignment and competitiveness as factors in strategic success.
  • Virtuous and Vicious Circles: Illustrates the cyclical nature of organizational performance in relation to strategic decisions and outcomes.

Strategy: The Totality

of Decisions
Learning Objectives

 Similarities and differences in strategies


 Strategic choices
 Support business strategy
 Support HR strategy
 The pay model guides strategic pay decisions
 Developing a total compensation strategy: four steps
 Source of competitive advantage: three tests
 “Best Practices” versus “Best Fit”?
 Guidance from the evidence
 Virtuous and vicious circles
Similarities and Differences in Strategies
Similarities and Differences in Strategies
Different strategies within the same industry
Similarities and Differences in Strategies
Different strategies within the same company

[Link]
Strategic Choices

 Strategy: Fundamental
directions that an
organization chooses

 Strategic perspective: Focus


on those Compensation
choices that help the
organization gain
competitive advantage
Exhibit 2.2 - Strategic Choices
Support Business Strategy

 Aligns pay systems with organization's business strategy


 Better the alignment, more effective is the organization
 Contingency notion
Change in business strategies should result in change, pay systems
Exhibit 2.3 - Tailor the Compensation
System to the Strategy
Support HR Strategy
Exhibit 2.5 - Fit Between HR Strategy and
Compensation Strategy and Effectiveness
The Pay Model Guides Strategic Pay
Decisions
Exhibit 2.6 - Key Steps in Formulating a
Total Compensation Strategy
Step 1 - Assess Total Compensation
Implications
Business strategy and competitive dynamics- Understand the business
 Changing customer needs
 Competitors’ actions
 Changing labor market conditions
 Changing laws
 Globalization
Step 1 - Assess Total Compensation
Implications cont.
HR strategy - Pay as a supporting player or catalyst for change?
Pay strategy
 Is influenced by how it fits with other HR systems
 Can be a supporting player, as in the high-performance approach
 Can take the lead and be a catalyst for change
Step 1 - Assess Total Compensation
Implications cont.
Culture/Values
 Guide an employer's behavior and treatment of employees
 Reflected in the pay system

Social and political context


 Legal and regulatory requirements
 Cultural differences
 Changing workforce
 Demographics
 Affects compensation choices
Step 1 - Assess Total Compensation
Implications cont.
Employee preferences
 How to better satisfy individual needs and preferences

Choice
 May confuse employees
 Challenging to design and manage
 Requires meeting codes and regulations

Union preferences
 Affect pay strategy
 Unions' interests can differ
 Compensation deals with unions can be costly to change
Step 2 - Map a Total Compensation
Strategy
Strategic map
 Provides compensation strategy based on pay model
 Clarifies the message that company is trying to establish with its compensation
system
 Does not tell which strategy is best but provides a framework and guidance
Exhibit 2.8 - Contrasting Maps of
Microsoft and SAS
Steps 3 and 4 - Implement and Reassess

Steps 3
 Involves implementing the strategy through :
 The design and execution of the compensation system

Step 4
 Recognizes that the strategy must change to fit changing conditions
 Involves periodic reassessment
Sources of Competitive Advantage:
Three Tests
Is it aligned?
 With the business strategy
 Externally with the economic and socio-political conditions
 Internally with HR system

Does it differentiate?
Does it add value?
 Calculate the return on investment (ROI)
“Best Practices” versus “Best Fit”?

BEST PRACTICES BEST FIT


Assumptions: An organization is likely to achieve
competitive advantage if the pay system:
 A set of best-pay practices exists
 Reflects company’s strategy and values
 Practices can be applied universally
across all situations  Is responsive to employees’ and unions’
needs
 Results in better performance with almost
any business strategy  Is globally competitive
Guidance from the Evidence

Internal alignment
 Pay differences among internal jobs can affect results

External competitiveness
 Paying higher than the average paid by competitors can affect results

Employee contributions
 Performance-based pay can affect results
Guidance from the Evidence

Managing compensation
 Consider all dimensions of the pay strategy

Compensation strategy
 Should be embedded within broader HR strategy
Identify what practices pay off best under what conditions
Exhibit 2.9 - Virtuous and Vicious
Circles

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