ROLE OF COMPENSATION

IN MAKING HR A
STRATEGIC BUSINESS
PARTNER
Approach
Individual
Individual
&& Team
Team
Competence
Competence

• The capability of
Values
Values people — individually Reward
Reward &&
&
& Culture
Culture and as teams — to Recognition
Recognition
carry out the strategy

• The way in which the • The manner in which

Strategic organisational norms behaviour, capability
Intent support the and/or results are Business
Leadership
Leadership
strategy reinforced Results

Work
Work • The ability of leaders
Processes to mobilise the Management
Management
Processes
&
organisation around Processes
Processes &
&
& Business
Business the strategy
Systems Systems
Systems
Systems
• The sequence of Organisation,
Organisation, • The key processes
activities through Team through which
which resources are Team &
& Job
Job management
transformed to meet Design
Design influences people
customer needs

• The way in which

accountabilities are
organised
 OBJECTIVES OF A
COMPENSATION PROGRAMME

• PRIMARILY TO ATTRACT, RETAIN AND MOTIVATE

EMPLOYEES OF THE CALIBRE NECESSARY TO
ACHIEVE THE ORGANISATION’S PRESENT AND
FUTURE OBJECTIVES
 ROLE OF COMPENSATION
• Pay is not the central issue for attracting and
retaining employees .
• People rarely leave a job for money alone.
• Instead, they leave for
• career advancement,
• technical or career challenge,
• communication reasons (lack of appreciation by
company, inability to have an impact at the
company, etc.),
• job security.
 WARNING SIGNS
• The Compensation Plan does not
differentiate between high and low
performers
• Company Goals are not being achieved
• High performing employees are leaving
• Employees do not understand and pay
attention to the Compensation Plan
• The Compensation Plan has not been
reviewed for strategic alignment in more than
3 years
STEPS TO CREATE STRATEGIC
COMPENSATION SYSTEMS

• Categorize employees by job

• Compare your pay to the labor market.
• Manage internal equity.
• Link pay with job performance
• Communicate how pay works.
 VARIABLE PAY SYSTEMS
• Variable pay is employee compensation that
varies with the organization's business
performance.
• Variable compensation plans continue to
increase in popularity.
• According to a recent survey by Hewitt
Associates, variable pay awards as a
percentage of exempt payroll has increased
steadily from 4% in 1990 to almost 12% in
2003.
 FACTORS DRIVING VARIABLE
COMPENSATION PLANS
• Variable pay is counter-cyclical
• Variable pay links employee goals with
the organization goals
• The employee is motivated to help the
organization do well.
 TYPES OF VARIABLE
COMPENSATION PLANS

• Formal bonus or incentive plans

• Profit sharing plans
• Lump sum merit awards
• Spot bonuses
• Gain sharing plans
• Stock Plans
 STOCK PLANS
• Stock Option Plans
• Stock Purchase Plans
• Stock options provide companies
with a long term incentive and
retention tool. The recipients of
stock options are motivated to help
the company perform well, so the
stock will appreciate in value
• As they must wait several years to
receive the entire stock option grant,
employees are motivated to remain
with the company, as long as the
stock value is increasing.