HR PLANNING

CRITIQUE PAPER ON COMPENSATION & BENEFITS

STRATEGY, COMPENSATION AND STRATEGIC COMPENSATION

Base from studies and researches there is an overlap in the definition between strategy

and incentive systems. However, I argue that the “strategic compensation” has thus far

failed to show a link between these two words, and that we do not actually know

whether, and if so, exactly how, compensation can be “strategic.” By “strategic,” I use

the classic definition from Porter – that the resource or factor, in this case the

compensation system, contributes to an organization’s ability to outperform competitors

without this performance edge being competed away over time via imitation. We have

learned an incredible amount about the performance implications of compensation in

the last decades, but I argue that whether and how compensation allows strategic

outperformance is not a topic that we know much about.

Studies and researchers in strategy stress that operational efficiency and strategic

outperformance are two separate concepts. An inefficient organization is defined as one

that is not performing as well as it could because it could reduce its costs without

harming its product quality, as measured by its customers’ willingness to pay for its

products. An organization can improve its performance by becoming efficient – reducing

unneeded costs but maintaining the same overall willingness to pay. An inefficient

competitor will perform worse than an efficient one, but to a strategist this is the realm of

operations, not strategy. A strategic organization takes steps to improve performance

that even an operationally efficient is unable to imitate. Of course, the average

organization is operationally inefficient, and can therefore improve performance by

identifying and ridding the source of inefficiency. Empirically it can be difficult to

distinguish an inefficient organization that is improving its efficiency from an efficient

organization taking steps that allow it to perform even better than other efficient firms.

It is recommended that we need more and better research linking compensation to the

organization performance, so the argument about whether and how an organization

compensation system can lead to strategic competitive advantage may seem didactic.

COMPENSATION AS A MOTIVATOR

It is common to treat the words “compensation” and “pay” as synonyms, but effectively

researching the impact of compensation on performance requires a broader analysis. If

we accept the argument that theories of strategic compensation must ultimately involve

pay for performance, then the theory must cover not just pay levels, but employee

performance levels too. In fact, even if one rejects the notion that strategic

compensation requires paying for performance, one still must measure employee

performance in order to know whether a given pay system improved the performance

and thereby made the organization more efficient.

Based from experience, managers and supervisors continually struggle with how to

motivate their employees. Many are motivated simply by compensation or salary that

employees usually received. If an employee realizes that if she does a great job, she'll

be compensated accordingly for it, she's going to strive to do her best. Some managers

believe that by using money as an incentive for employees, then employees are

motivated to work their hardest and at their peak performance level. While this is the

case with most people, there are some employees where money does not motivate
them to work harder and more effectively. These people look more for recognition,

rewards, and perks, such as incentives to go above and beyond their responsibilities.

Once an employee is satisfied, giving them more of the same work won't motivate them,

although managers mistake this fact in thinking that if an employee has completed his

work, he must want more of the same thing. But this is not a motivator. Motivators are

actually the things that really excite people to put out more energy, effort, and efficiency.

Recognition, control over one's work, and garnering satisfaction from the actual position

are just a few motivators.

Going beyond the traditional monetary recognition for a job well done, great managers

must understand each individual employee and remember the "human" part of the job

and determine what really motivates each individual person.

Indeed, creating the right compensation plan leads to stronger job satisfaction. The right

compensation plan includes benefits, along with all the other bonuses available. I

believe, that having the right compensation program, the organization invests

employees into the work being done, which gives them a stronger sense of satisfaction

when the company succeeds because they know they will be rewarded for their efforts

and everyone likes to be appreciated.