STRATEGIC

COMPENSATION
A Human Resource Management Approach

Chapter 1:
Strategic
Compensation: A
Component of Human
Resource Systems

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 Learning Objectives
1. Basic compensation concepts and the
context of compensation practice.
2. A historical perspective on compensation.
3. The difference between strategic and
tactical compensation.
4. Compensation professionals’ goals within a
human resource department.
5. How compensation professionals relate to
various stakeholders.

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 Learning Objective 1

Basic compensation concepts

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 What Is Compensation?
• Compensation represents the rewards
employees receive for performing their job.
They are either:
– Intrinsic(internal reward within you):
intrinsic compensation represents employees’
critical psychological states that result from
performing their jobs.
– Extrinsic(from someone): extrinsic
compensation includes both monetary(‫قديحتى‬11‫ن‬
‫لتأمين‬11‫)ا‬
– and nonmonetary (‫قدير‬111‫تت‬1‫ادا‬1‫ه‬1 ‫قديش‬11‫)غير ن‬rewards.1-4
 Elements of Core Compensation
‫ألساسي‬11‫ويضا‬1‫لتع‬11‫عناصر ا‬
Base pay(basic pay)
- Hourly pay (mostly in USA) - Annual salary
Base pay adjustments
- COLAs(cost of living adj) -Seniority pay
- Merit pay - Skill-based pay
- Incentive pay - Person-focused pay

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 Base Pay
Compensable Factors)where company base their base
pay): 1‫شركه‬11‫ ل‬1‫ركه‬11‫ختلفمنش‬11‫ممكنت‬

• An employee’s skill level

• An employee’s effort
• An employee’s level of responsibility
• The severity of the working conditions

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 Base Pay Adjustments
COLAs—COLAs represent periodic(‫ )دوري‬base
pay increases that are founded on changes in
prices as indexed by the consumer price index
(CPI). ‫ار‬1‫سع‬1‫بلمؤشر أ‬11‫رسمنق‬1‫ما هو مفه‬11‫ار ك‬1‫ألسع‬11‫يا‬111‫تف‬1‫لتغيرا‬11‫ا‬
‫لمستهلك‬11‫ا‬
Seniority Pay—seniority pay systems reward
employees with periodic additions to base pay
according to employees’ length of service in
performing their jobs
Merit Pay‫لجدارة‬11‫—ا‬merit pay programs assume
that employees’ compensation over time should
be determined, at least in part, by differences in
job performance. 1-7
Cost of Living Adjustment

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Merit Pay

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 Base Pay Adjustments (Cont’d)
Incentive ‫لحافز‬11‫ ا‬Pay—incentive pay (or variable
pay) rewards employees for partially or
completely attaining a predetermined work
objective.
Pay-for-Knowledge Plans(attaining new qualification or skill or
certain certificate)(managerial job)—pay-for-knowledge plans
reward managerial, service, or professional
workers for successfully learning specific
curricula
Skill-based Pay(learning for new machine)(low level job)—skill-
based pay is used mostly for employees who
perform physical work and increases these
workers’ pay as they master new skills.
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Incentives

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 Employee Benefits

• Discretionary Benefits‫ديرية‬1‫لتق‬11‫ئد ا‬1‫وا‬1‫لف‬11‫ا‬

• Legally Required Benefits(health

insurance)(sick leave)

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 Discretionary Benefits
Three Broad Categories:
• Protection programs—provide family benefits,
promote health, and guard against income loss caused
by such catastrophic factors as unemployment,
disability, or serious illness، ‫لصحة‬11‫زيز ا‬1‫ وتع‬، ‫ألسرة‬11‫يا ا‬1‫ مزا‬1‫قديم‬111‫ت‬
‫إلعاقة أو‬11‫لة أو ا‬11‫لبطا‬11‫ارثية مثلا‬11‫ملك‬1‫وا‬1‫ عنع‬1‫لناجم‬11‫لدخلا‬11‫نا‬1‫قدا‬111‫لحماية منف‬11‫وا‬
‫لخطير‬11‫لمرضا‬11‫ا‬
•Paid time-off—provides employees with pay for time
when they are not working
•Services—provides such enhancements as tuition
reimbursement and day care assistance to employees
and their families(vacation tickets)
‫ تقدم تحسينات مثل سداد الرسوم الدراسية ومساعدة الرعاية‬- ‫الخدمات‬ 1-13
•
 Legally-Required Benefits
Federal Legislation Designed to:‫التحادي‬11‫ ا‬1‫لتشريع‬11‫ا‬
‫جل‬1‫ منأ‬1‫مصمم‬:
• Promote worker safety and health ‫تعزيز سالمة العمال‬
• Maintain family income ‫وصحتهم‬
‫الحفاظ على دخل األسرة‬
• Assist families in crisis ‫مساعدة العائالت في‬
‫األزمات‬
• Provide assistance in case of ‫تقديم المساعدة في حالة‬
– Disability ‫عجز‬
‫البطالة‬
– Unemployment

Don’t need to memorize

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 Summary
Learning Objective 1
• What is compensation?
• Elements of core compensation
• Base pay
• Base pay adjustments
• Employee benefits
• Discretionary benefits
• Legally-required benefits

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 Learning Objective 2

Historical perspective on compensation

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 Historical Perspective on
Compensation(not in the mid)job analysis

• Many employers instituted so-called scientific

management practices to control labor costs,
as well as welfare practices to maintain control
over labor.(they observe their employee to see how many producing)
‫ فضالً عن‬، ‫أنشأ العديد من أصحاب العمل ما يسمى بممارسات اإلدارة العلمية للتحكم في تكاليف العمالة‬
.‫ممارسات الرفاهية للحفاظ على السيطرة على العمالة‬
• Time-and-motion studies analyzed the time it
took employees to complete their jobs. These
studies literally focused on employees’
movements and the identification of the most
efficient steps to complete jobs in the least
amount of time.(‫امل‬1‫ ع‬1‫م‬1‫ويسك‬1‫ا ك‬1‫املمعه‬1‫تع‬11‫قلااذا ماعرفنا ن‬1‫كثر او ا‬1‫اسا‬11‫وظفن‬11‫عنيممكنن‬11‫ي‬
‫وقتمعين‬111‫ مثال ب‬1‫لشغله‬11‫يعملو ها‬11‫خصل‬11‫ ش‬1‫نحتاج وكم‬111‫)ب‬ 1-17
 Historical Perspective on
Compensation (Cont’d) ‫ة‬
‫قام بها‬
• Welfare practices were generous endeavors ‫بدافع‬
undertaken by some employers, motivated in ‫وظفين‬
‫عزيز‬
part to minimize employees’ desire for union ‫إنتاجية‬
representation, to promote good management
and to enhance worker productivity.
‫تتضمن بعض أمثلة الفوائد بموجب ممارسات الرعاية استخدام المكتبات والمرافق الترفيهية والمساعدة التعليمية والتأمين‬
‫الطبي‬
• Competitive advantage refers specifically to a
company’s ability to maintain market share and
profitability over a sustained period of several
years.

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 Summary
Learning Objective 2

• Historical perspective on compensation

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 Learning Objective 3

Strategic versus tactical compensation

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 Strategic Versus Tactical Decisions

• Strategic decisions(long time goal and the direction of the

company)(another uaeu in saudi arabia)—guide the

activities of companies in the market

• Tactical decisions(hire another prof)—

support the fulfillment of strategic
decisions
• ‫دعم تنفيذ القرارات االستراتيجية‬
Page 30 in the book lilly ex 1-21
 Competitive Strategy
• The planned use of company resources
– Technology
– Capital
– Human Resources
• Two or more years of time span
• Competitive strategy choices:
– Lowest cost strategy
– Differentiation strategy

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Competitive Strategy Choices

Lowest Cost Strategy: focus on being

lowest cost producer/seller of goods or
services

Differentiation Strategy: focus on offering

unique goods or services to the public

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 Lowest-Cost Strategy
Effective when Jobs:

• Include predictable behaviors‫ة‬1‫لمتوقع‬11‫لمتكررة وا‬11‫لسلوكياتا‬11‫ا‬

• Have a short-term focus
• Require autonomous activity ً‫نشاطا مستقال‬ً ‫تتطلب‬

• Focus on quantity of output

Ex: FlyDubai (reduced operations costs)

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 Differentiation Strategy
Effective when Jobs:
• Require highly creative behaviors
• Have a long-term focus
• Demand cooperation and
independence(need to discus idea)
• Involve risk-taking

Ex: P&G differentiates in pet food products

Eukanuba from Iams
(Brand image and price premiums) 1-25
 Summary
Learning Objective 3

• Strategic versus tactical decisions

• Competitive strategy
• Competitive strategy choices
• Lowest-cost strategy
• Differentiation strategy

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 Learning Objective 4

Compensation professional’s goals

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 HR’s Role
A quotation from Jay Hannah of BancFirst
Corporation:
“The HR department is the source and keeper
of critical information, which is key in today’s
workplace. With the information they provide, we
in turn can build and design strategies to hire and
retain the best workforce possible. And this may
sound cliché, but it’s very true—the real
competitive advantage is our company’s human
resources.”

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 Human Resources Practices
• Recruitment • Career Development
• Selection • Labor-management
• Performance relations
Appraisal • Employment
• Training termination
• Insuring legal
• Compensation
compliance ‫ل‬11‫المتثا‬11‫مانا‬11‫ض‬
management
‫لقانوني‬11‫ا‬

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 Compensation Department’s Main
Goals***
Compensation professionals promote
effective compensation systems by meeting
three important goals:

• internal consistency.(job analysis and

evaluation)
• market competitiveness(what ever benefits and reward are given
for employee should be a compititve,better and higher regarding other organi)

• recognition of individual contributions(contributing

more should have a higher reward or salary)

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 Internal Consistency (achieved by doing job
evaluation and analysis)

• Achieved when the value of each job is

clearly defined.
• Represents:
– Job structure
– Hierarchy‫رمي‬1‫له‬11‫لتسلسلا‬11‫ا‬
• Achieved using:
– Job analysis
– Job evaluation
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 Market Competitiveness

• Compensation policies that fit with business

objectives‫لعمل‬11‫فا‬1‫هدا‬1‫ أ‬1‫تناسبمع‬111‫لتيت‬11‫ويضا‬1‫لتع‬11‫ياساتا‬11‫س‬

• Vital in attracting and retaining employees‫حيوية‬

1‫هم‬111‫الحتفاظ ب‬11‫لموظفينوا‬11‫ذبا‬1‫يج‬111‫ف‬

• Are based on:

– Strategic analyses
– Compensation surveys
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 Individual Contributions
Pay Structures: pay is
determined by employee’s
credentials‫لموظف‬11‫عتماد ا‬1‫قا‬1‫أورا‬, job
knowledge, and job
performance
Pay Grades(H): based on
compensable factors and value
Pay Ranges(V): builds on
grades, uses midpoints,
minimums, and maximums‫بني‬11‫ي‬
‫لحد‬11‫لمنتصفوا‬11‫قاط ا‬11‫ ن‬1‫لدرجاتويستخدم‬11‫علىا‬
‫ألقصى‬11‫لحد ا‬11‫ألدنىوا‬11‫ا‬ 1-33
 Summary
Learning Objective 4
• HR’s role
• HR practices
• Compensation department’s main goals
• Internal consistency (to be fair with every one)

• Market competitiveness (make sure of external consistency)(1‫لموظفينمقارنه‬11‫اعطيا‬

‫لمنافسين‬11‫حسنمنا‬1‫حسنوا‬1‫را ا‬111‫لليب‬11‫ا‬111‫)ب‬

• Individual contributions (as much as the employee contribute they will be

rewarded)

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 Learning Objective 5 and
Summary:
Stakeholders
Individuals or entities directly affected by
compensation practices, like:
• Employees
• Line managers‫لتنفيذيين‬11‫ينا‬1‫لمدير‬11‫ا‬
• Executives‫لمديرين‬11‫ا‬
• Unions‫لنقابات‬11‫ا‬
• U.S. government
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Printed in the United States of America.

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