Strategic Compensation

1
StrategicCompensation
2
The Challenge

• To align the deployment of human capital with
  company strategy

3
Environmental Factors AffectingPay Strategy

• Sociocultural Forces
• Demographic Forces
• Technological Forces
• Economic Forces
• Legal and Political Forces

4
Porters Five Forces

• Threat of new entrants to the market
• Bargaining power of the firms suppliers
• Bargaining power of the firms customers
• Threat of Substitute products
• Intensity of rivalry among competing Firms

5
Porters Five Forces Model of Competition
Threat of New Entrants
Rivalry Among Firms Price competition Product
Innovation Product Differentiation
Supplies Bargaining Power
Buyers Bargaining Power
Threat Of Substitutes
6
Organizational Factors AffectingPay Strategy

• Mission
• Competitive Strategy
• Leadership
• Culture
• Organizational Demographics
• Labor Market
• Degree of globalization

7
Task Environment

• Labor Market
• Product Market
• Competition
• Stakeholder Demands
• Degree of globalization

8
Components Of Compensation

• Base Pay
• Merit Pay
• Variable Pay
• Incentive Pay
• Pay At Risk
• Bonuses
• Gain sharing
• Profit sharing
• Benefits

9
Strategic HR Choices

• Options available in designing its human
  resources systems
• Strategic to the extent they affect firm
  performance favorably or unfavorably in the long
  run

10
Strategic Approaches

• Market Life Cycle
• Competitive Strategy
• Miles and Snow Topology

11
Market Life-CycleCorporate Strategies
Model 1

• Start-up
• Growth
• Maturity
• Decline
• Turnaround

12
Start-Up

• Harnessing resources
• Money
• People
• Facilities and Supplies
• Customers
• Overcoming barriers to entry
• Building customer loyalty

13
Growth Firms

• Aggressive growth
• Demand outstrips supply
• Evolution
• Acquisitions,
• Mergers,
• Joint ventures
• Willing to purchase and divest businesses

14
Mature

• Stay with industry
• Market penetration
• Shake-out
• High product similarity
• Fight for survival

15
Decline

• Cost Reduction
• Preserve/recoup Market share
• Internal efficiencies
• Divestment
• Niche
• Harvesting

16
Turnaround

• Evaluation
• Cutting and pruning
• Building
• Nurturing

17
Business Strategies
Model 2

• Overall cost leadership
• Innovation
• Quality enhancement
• Combined strategy

18
Overall Price Leadership

• Competitive advantage through lower costs.
• Financial/accounting driven.
• Sustained capital investment
• Low cost distribution system
• Tight cost control, detailed reports
• Structured organizations
• Products designed for ease of manufacturing

19
Innovation

• Focus on the product or service uniqueness.
  
• Strong market ability
• Product engineering
• Basic research
• Corporate reputation for quality or technology
• Amenities to attract skilled labor, scientists,
  creative people

20
Quality

• Focus on providing quality service that
  specifically meets the needs of the
  customer
• Philosophy of Quality
• Continuous Improvement
• Quality measurement through Statistical Process
  Control
• Goal setting and monitoring
• Doing it right the first time

21
Combination

• Attempts to minimize costs by focusing
• on a specialized market slot with specialized
• pricing.
• Alternatively, focuses on cost reduction through
• quality workmanship
• Illinois Tool Works -- Fasteners
• Gymboree -- creative activities for little kids

22
Balancing Three Types Of Equity

23
Miles and Snow Topology
Model 3

• Defenders
• Prospectors
• Analyzers
• Reactors

24
Defenders
Model 3

• Narrow Line of products
• Defend Market Position Against Anyone
• Cigarette companies
• Coca Cola
• Intel

25
Prospectors
Model 3

• New Market Opportunities
• Aggressive search out new products
• Innovation and new product development
• Examples
• Amazon.com
• 3M Company

26
Analyzers
Model 3

• One product in a stable market and one product in
  a changing market
• Examples
• Schering-Plough Corporation
• Stable drug Garamycin
• Mainly me-too copy drugs
• Interferon in new market

27
Reactors
Model 3

• Major changes in environment
• Slow to Reactor
• Examples
• Bethlehem Steel
• The Boeing Company