THE STRATEGIC ROLE OF

COMPENSATION
YOUR SUBTITLE GOES HERE
WHAT IS COMPENSATION?
•
Compensation can be defined as all forms of
financial returns and tangible service and
benefits employees receive as part of an
employment relationship.
•
Which includes:
•
Direct financial compensation 
•
Indirect financial compensation 
•
Non-financial compensation 
VIEWS OF COMPENSATION

MANAGERS’ VIEW EMPLOYEES VIEW

•
Major expense •
Return in an exchange
•
Means to influence with their employer an
employee’s behavior entitlement or a reward.
•
To improve the
•
Major source of financial
organization performance security
•
Entitlement for being an
employee of the company
•
Reward for a job well
done.
WHAT IS A STRATEGY?
•
The company’s long-term
plan for how it will
balance its internal
strengths and weaknesses
with its external
opportunity and threats to
maintain a competitive
advantage.
WHAT IS STRATEGIC
COMPENSATION PLANNING?
•
Determines how much an organization
want to pay employees and what type
of employees they want to attract.
•
Pay scales,
•
Reward programs,
•
Benefits packages
•
Company perks.
WHAT IS STRATEGIC HUMAN
RESOURCES MANAGEMENT?
•
Strategic HRM is an
approach that defines
how the organization's
goals will be achieved
through people by
means of HR strategies
and integrated HR
polices and practices.
THE MAIN PURPOSE OF
STRATEGIC COMPENSATION
PLANNING IS TO :
•
Retain
•
Attract
•
Motivate
•
Develop

7
 SHRM AND THE STRATEGIC
DIRECTION OF AN
ORGANIZATION.
•
Strategic HRM is the key to improved business performance.
•
Strategic direction is a course of action that leads to the
achievement of the goals of an organization's strategy.
•
An organization’s strategic direction is a combination of its
vision, mission, strategies and its core values.
A ROAD MAP TO EFFECTIVE
COMPENSATION
GOALS OF A STRATEGIC
COMPENSATION POLICY
•
To reward employees’ past performance.
•
To retain competitive in the labour market.
•
To maintain salary equity among employees.
•
To mesh employees’ future performance with
organizational goals.
•
To control the compensation budget.
•
To attract new employees.
•
To reduce unnecessary turnover.
WHAT IS A COMPENSATION
SYSTEM?
•
A compensation system is a system that is designed to
determine the amount of pay, given the many individual
in an organization.
TYPES OF COMPENSATION
SYSTEMS
 IMPORTANCE OF
COMPENSATION SYSTEMS
•
WITHIN AN ORGANIZATION
 A well-designed compensation plan becomes one of many
tools a firm can use to help reach its strategic goals.

•
Make the compensation system to attract the best for the
organization.

•
Reward the peak performers with systems that match
achievement to compensation.
IMPORTANCE OF AN IDEAL
COMPENSATION PLAN
•
An ideal compensation system will have:

•
Positive impact on the efficiency and results produced by
employees.

•
Better performance and achievement of standard

•
Enhance the process of job evaluation..
IMPORTANCE OF AN IDEAL
COMPENSATION PLAN
•
Sound Compensation/Reward System brings peace in the
relationship of employer and employees.
•
Adequate compensation retains valuable employees

•
Creates a healthy competition among them

•
Encourages employees to work hard and efficiently.

•
The perfect compensation system provides platform for
happy and satisfied workforce. This minimizes the labour
turnover. The organization enjoys the stability.
IMPORTANCE OF
COMPENSATION SYSTEMS
WITHIN
•
AN ORGANIZATION
Compensation systems that maintain its competitiveness and
ensure sustainability in the future include:
•
Good balance of wages
•
Benefits
•
Rewards and recognition.
IMPORTANCE OF AN IDEAL
COMPENSATION PLAN
•
Increase morale, efficiency and cooperation.
•
Being just and fair would provide satisfaction to the
workers
•
Solve disputes between the employee, union and
management.
•
The system should follow the management principle of
equal pay. It should motivate and encouragement those
who perform better and should provide opportunities for
those who wish to excel.
HOW DO WE DEVELOP A
TOTAL COMPENSATION
STRATEGY
HOW DO WE DEVELOP A
TOTAL COMPENSATION
STRATEGY
Define your compensation philosophy.
•

•
Link compensation to your overall business strategy.
•
Change the culture and reinforce it with
compensation.
•
Reward the behaviours that drive the results.
•
Think total compensation.
•
Measure your return on invested payroll £s.
TOTAL COMPENSATION
STRATEGY
•
Strong total compensation strategy must align with your
business strategy.
WHAT IS OUR COMPETITION
FOR THE PEOPLE WE WANT
TO HIRE?
Will we focus on salary, bonus plans tied to
•

performance, equity in the business, our benefit

package?
HOW WILL WE POSITION
OURSELVES IN OUR PAY
MARKET – MIDDLE OF THE
MARKET, ABOVE AVERAGE?
HOW CAN WE BE SURE
THAT OUR PAY PROGRAMS
SUPPORT OUR BUSINESS
PLANS AND OUR CULTURE?
HOW DO WE MAKE SURE
PAY PROGRAMS WORK FOR
EMPLOYEES, MANAGEMENT
AND OUR SHAREHOLDERS?
COMPENSATION STRATEGY

•
Understanding how a compensation strategy may be

seen as a source of sustained competitive advantage

for the organization

 •
Developing the right compensation
strategies is critical to attracting, retaining,
motivating and developing the right
employees for the right positions.
COMPETITIVE ADVANTAGE
•
Competitive advantage is achieved when a
business produces surplus profits - greater
than it's competitors
COMPENSATION
STRATEGIES
•
For a business to achieve the results associated
with a competitive advantage it needs the right
people consistently doing the right things in the
right way and for the right reasons.
COMPETITIVE ADVANTAGE
•
In order to capture and maintain competitive
advantages the company must develop and
implement strategies to differentiate
themselves from the competition.
•
Read more: http://www.ehow.com/how_7787980_build-sustainable-competitive-advantage.html#ixzz2mHKEn41v
 MICHAEL PORTER IDENTIFIED
TWO BASIC TYPES OF
COMPETITIVE ADVANTAGE:
•
“A competitive advantage exists when the firm is able
to deliver the same benefits as competitors
•
but at a lower cost (cost advantage),

or deliver benefits that exceed those of competing

products

(differentiation advantage)…
 THE “TOTAL REWARDS” VALUE
PROPOSITION

•
Compensation is only one of four issues that have

to be engineered and managed in such a way that

will sustain the company’s competitive advantage.

The others are a compelling future; personal and

professional development opportunities and a

positive work environment,.

THE “TOTAL REWARDS” VALUE
PROPOSITION
•
A compelling compensation plan becomes a
cohesive link within the total rewards strategy that
makes up a company’s value proposition for its key
talent.
 THE KEY
•
In sustaining a competitive advantage, creating a
compensation strategy that would envision, create and sustain
a rewards system that will draw a compelling link are
•
company vision (where),
•
business strategy (how),
•
roles and expectations (who and what),
•
rewards (how much)
•
and employee vision(relevance).
•
This is called creating “line of sight”—and any company that
expects to have a competitive advantage must achieve it.
“If you pick the right
people and give
them the
opportunity to
spread their
wings- and put
compensation as a
carrier behind it-
you almost don’t
have to manage
them”. Jack
Welch
ANY QUESTIONS????