Organization Structure: Strategic and Tactical Compensation Issues

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Organization Structure Strategic and Tactical
Compensation Issues

• Jayendra Rimal

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Introduction to Compensation Strategy

• Support organizational mission and strategy
  through compensation strategy and tactics that
  integrate major organizational groups of
  employees.
• It is necessary for organizational leaders to
  understand how strategy and tactics interact and
  become integrated.
• The compensation system must be transmitted in a
  manner that is understood and accepted by all
  employees that they are contributing to the
  success and the organization is willing to share
  the revenues in an equitable manner.

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Some Compensation Strategies

• Relating job worth to differences in job
  requirements
• Recognizing the worth and value of employee
  knowledge and skills
• Rewarding employee contribution and results
  achieved
• Promoting continued employee acquisition and
  upgrading of knowledge and skills
• Supporting team and work unit efforts
• Design compensation plans that compete with the
  market
• Aligning compensation of all employees with
  objectives and goals of the organization
• Providing a compensation package that enhances
  current lifestyles and provided long-term
  protection to employees and their dependants.

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Development of an organization
Establishing a Philosophy
Identifying the Mission
Developing Policy
Formulating Organizational Strategy
Determining Goals and Objectives
Defining Work Unit Activities
Grouping Tasks into Jobs
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Development of an organization

• The Philosophy Many do not have written ones
  but it describes the values of the top
  management. Critical to organizational success is
  the degree of congruence between members and
  company vales.
• Mission Describes in value-laden terms what the
  organizations hopes to accomplish in the long
  term and reasons for existence.
• Policy Broad guidelines for directing actions.
• Strategy This provides the foundation for
  future growth and development of the
  organization. It has to be realistic.
• Goals and Objectives These are result oriented
  statements that make the transition from
  strategic to tactical operations through the most
  effective and efficient means.
• Work Unit Activities Necessary to develop unit
  level functional statements. This helps in
  integrating objectives with that of the units.
• Worker Tasks Specific individuals are assigned
  identified tasks, duties and responsibilities.

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Employees A Critical Resource

• The quality and quantity of organizational output
  depends on the skills, interest and effort of
  employees. Some important relationships with
  respect to pay
• Pay Satisfaction Employees make decisions based
  on comparison with others, both in and out of the
  organization
• Job Satisfaction Pay and job satisfaction,
  although different, significantly influence each
  other.
• Organizational Satisfaction Some of the factors
  that promote this are security in employment,
  fairness in personnel decisions, accepting
  organizational philosophy
• Satisfaction here means fulfillment of an
  obligation is individual based and is a dynamic
  process, not a thing.

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Creating an Organizational Hierarchy

• One approach to distributing rewards is to focus
  on the hierarchy the higher the level, the
  greater the responsibility and higher the reward.
  Hierarchy is based on different levels within a
  company.
• Board of directors, senior management, operations
  managers (senior, mid-level and first-level),
  sales, professional, administrators and operative
  employees.
• Unlike employees compensation for BOD consists
  of fees for board meetings, annual retainer,
  acquisition of stock in company
• Senior managers comprise of CEO and other top
  executives. Compensation of senior managers
  relates to that of the CEO
• Operating Managers Middle hierarchy and wide
  range of pay with hopes of promotion to senior
  manager level
• Sales Personnel Responsible for sale of
  product or service. Five methods of pay salary,
  sales commission, combination, salary and bonus,
  combination of salary, bonus and commission
• Professionals Perform non-routine work
  requiring originality, discretion, innovative
  abilities and analytic skills. Compensation
  equivalent to middle level management or higher.
• Operative Employees Those ate the lower rung.
  Starts from minimum.

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Pay Relationship

• Pay Equity fairness in pay is usually evaluated
  by asking How well does my pay compare with
  that other employees of my unit and the
  organization? But certain jobs pay better than
  other jobs with organizations differing in how
  much they pay they pay employees. This is the
  market-based economy.
• Pay Ratios There must be a relationship between
  pay of all employees from top to bottom. Ratios
  of lowest to highest is 51 in the US it is much
  higher while in Nepal it is very high in some
  industries.

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Any questions?