MANAGEMENT 4330

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MANAGEMENT 4330 Compensation A
StrategicPerspectives Dr B. Wayne Rockmore,
APS
Chapter
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MANAGEMENT 4330Todays Agenda
MEA Team Exercise Strategic Levels SBU Strategies
(Hofer Schendel) Environmental Uncertainty
Model of Pay Plan Design Formulating
Compensation Strategy
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MEA CLASS EXERCISE

• Identify Three (3) External Forces (Issues) for
• each MEA Segment for Your Teams Business
• Social
• Economic
• Technology
• Political
• Identify How the Issues are Different for each
• Businesses are Different (Prepare for
  Discussion)
• Submit the Assignment
• State Team Name
• List Team Member Names (in ascending
  alphabetical
• order)

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What Is the Strategic Compensation Perspective?
The strategic perspective involves thinking about
how pay can assist in achieving organization
success, while not being fixated on pay
techniques.
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Strategic Compensation Decision Making

• Decision making focused on ensuring that
  compensation plan design, implementation, and
  control activities relate directly to the
  achievement of the organizations performance
  goals, within the constraints of societal
  expectations and mandates

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Human Resource
Governmental Decisions
Societal
Strategies Affecting Compensation Decision Making
Corporate
Organizational Management Decisions
Business
Function Level Decisions
Functional
Strategies
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Compensation Decisions
Support Organizational Performance Goals
Are Consistent with Other Human
Resource Management Activities
Development
Staffing
Training
Employee Safety Health
Labor Relations
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General Business Strategy Classifications Miles
Snows Strategic Typology

• Prospectors Market leaders, characterized by
  market/product development (RD), aggressive and
  risk oriented.
• Analyzers are more stable (cautious) in market
  growth and/or expansion. They will pursue growth
  and new developments once they have proven
  successful moderate risk through extensive
  planning.
• Defenders attempt to maintain secure markets
  that experience minimal and slow change. They
  are characterized as followers.
• Reactors They do not pursue new markets and
  exhibit minimal planning. Response to market
  change is reactionary and often has negative
  results for the organization.

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Business-Level (SBU) Strategies (Hofer
Schendel, 1978)

• Share Increasing Absolute growth in
• Market share (PLC Intro, growth)
• Growth Relative growth in Market share
• (PLC Growth, Shakeout)
• Profit Sustaining satisfied Market share (PLC
  Mature)
• Turnaround Attempt to regain declining Market
  share, very
• risk oriented strategy (PLC Decline)
• Divestiture/Liquidation (Exit Strategies)
  Losing Market
• share and are planning on exiting the market
  (PLC
• Decline, Termination)

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The Relationship between Business Unit Strategy
to Compensation Goals
Strategy A fundamental pattern of present and
past deployments and environmental interactions
that indicates how an organization will achieve
its objectives.
HR Strategy Acquiring the Quantity and Quality
of human resources the possess the necessary
knowledge, skills and abilities within relevant
time constraints, to achieve organization goals
Compensation Goals Attract, Retain, Motivate
and Develop the Human Resources necessary to
accomplish the Organization's goals
Compensation Strategy Decisions to
Environmental Threats and Opportunities and
linked or at least support the overall direction
of the organization
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Strategic Alignment
PTE VISION/MISSION CORE BELIEFS OBJECTIVES BUSINES
S STRATEGY
COMPENSATION (Direct/Indirect)SYSTEM
FIRM PERFORMANCE
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ENVIRONMENTAL UNCERTAINTY MODELOF PAY PLAN DESIGN
Executive Perception of Task Environmental
Uncertainty

• PAY PLAN DESIGN
• Pay Mix Level
• Pay Mix Components
• Pay Adjustment Policies
• Pay Communication
• Pay Evaluation Criteria

• FIRM PERFORMANCE
• ROI
• EPS
• Represented by an annual average as either a
  gain or deficit

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Environmental Uncertainty, Pay Plan Design Firm
Performance
Executive Perception of Task Environmental
Uncertainty
Low Environmental Uncertainty (LUC)
High Environmental Uncertainty (HUC)
Fixed Pay Plan
Variable Pay Plan
Fixed Pay Plan
Variable Pay Plan
GAIN in ROI EPS
Deficit in ROI EPS
Deficit in ROI EPS
GAIN in ROI EPS
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Key Steps to Formulatea Compensation Strategy

• 1. Assess Total Compensation Implications
• Competitive Dynamics
• Core Culture / Values
• Social and Political Context
• Employee / Union Needs
• Other HR Systems

2. Fit Policy Decisions to Strategy Objectives
Contributions Alignment
Administration Competitiveness

• 4. Reassess the Fit
• Realign as Conditions Change
• Realign as Strategy Changes

• 3. Implement Strategy
• Design System to Translate Strategy
• into Action
• Choose Techniques to Fit Strategy