CH.

2 STRATEGY : THE TOTALITY OF DECISIONS George

Milkovich, Jerry Newman, Barry Gerhart

Delvi Olimpia - 1906329202

 SIMILARITIES AND
DIFFERENCES
IN STRATEGIES
Their decisions on the five 01 02
dimensions of compensation PROBLEM & MARKET ANALYSIS &
strategy are both similar and SOLUTION TARGET
different. Here you could Here you could
describe the topic of describe the topic of
All three formulate their pay the section the section
strategy to support their
business strategy. 03 04
OUR OUR
All three emphasize PROCESS CONSULTANTS
outstanding employee Here you could Here you could
describe the topic of describe the topic of
performance and commitment. the section the section

However, there are major

differences.
 STRATEGIC CHOICES
& SUPPORT BUSINESS
STRATEGY
 SUPPORT HR STRATEGY

P f(A,M,O)
P is performance, which is specified to be a function ( f ) of three factors: A is ability,
M is motivation, and O is opportunity.
AMO logic is that HR systems will be most effective when roles are designed to allow
employees to be involved in decisions and have an opportunity to make an impact,
when employee ability is developed through selective hiring and training and
development, and when the compensation system motivates employees to act.
 The Pay Model Guides Strategic Pay Decisions

Five strategic compensation

EXTERNAL
OBJECTI COMPETITI
MANAG
VE VENESS EMENT

Support to Total Open and

strategy and compensation transparent to
EMPLOYEE
adaptive to INTERNAL against the employee.
CONTRIBU
culture, ALIGNMENT competitor Involvement in
TION
regulation, designing and
global managing the
environment Different types pay increases be system
level skill and based on
work to be individual and/or
paid team
performance
1. DEVELOPING A TOTAL COMPENSATION STRATEGY: 4 STEPS

2. MAPS THE COMPENSATION STRATEGIES OF MICROSOFT AND SAS

MARS JUPITER VENUS

Despite being red, Mars
is actually a cold place.
It’s full of iron oxide
dust, which gives the
planet its reddish cast
It’s a gas giant and the Venus has a beautiful
biggest planet in our name and is the second
Solar System. Jupiter is planet from the Sun.
the fourth-brightest It’s terribly hot, even
object in the sky hotter than Mercury

SAS, a software development company

1. VIRTUOUS AND VICIOUS CIRCLES

2. CASE STUDY
The Role of Labor Costs in the Retail Electronics &
Airline Industries
Circuit City had traditionally used a commission pay plan that paid off big for
experienced, high-performing sales people.
The strategy differentiated Circuit City from archrival Best Buy  less expert
salespeople and offered lower wages and smaller bonuses.
Best Buy’s sales and total shareholder returns soared past those of Circuit
City.
Circuit City laid off 3,900 top-earning salespeople in 2003 and re- placed them
with 2,100 less-experienced people who received lower wages and smaller
bonuses.
Some commentators attributed the loss to the fact that Circuit City had Exhibit 2.9 suggests that performance-based pay works
gotten rid of many of its most experienced and highly trained employees, best when there is success to share.
which they believed translated into a poorer customer experience and, in An organization whose profits or market share is
turn, lower revenues and profits. increasing is able to pay larger bonuses and stock
American Airlines is currently going through bankruptcy, something that other awards.
“legacy” airlines (e.g., USAir, Delta, United) have already done. American paying these bonuses fairly improves employee attitudes
states that its goal is to reduce labor costs by $1.25 billion per year. and work behaviors, which in turn improves their
In the airline industry prior to bankruptcy, USAIR had a labor cost/ASM of .055. performance.
After bankruptcy, labor cost/ASM was .031. At American, in contrast, The circle gains upward momentum.
the labor cost/ASM is .046, or .046 / (.046 - .031)= 33% higher than Employees receive returns that compensate for the risks
USAir. they take.
And they behave like owners, since they are sharing in the
So, managing pay means ensuring that the right people get the right pay for organization’s success.
achieving objectives in the right way.
 THANKS!
Does anyone have any questions?
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