HRM 450 Susan 930

• Strategic compensation


  The design and implementation of compensation systems that reinforce the objectives of both business and HR strategies
• Compensation as a strategic business partner

  • Leverage the value of human capital through well-designed pay and incentive programs, and person-focused pay that enables employees to perform better
• Strategic compensation decisions


  Does the design and implementation of compensation practices effectively direct employee behavior so that it supports the business and HR strategies?
• Lowest cost strategy


  • Jobs tend to require predictable behaviors, a short-term focus, and a focus on quantity and efficiency
• Differentiation strategy


  • Jobs tend to require highly creative behaviors, a long-term focus, cooperation among employees, and risk-taking
• Lowest cost strategy


  • Ryanair (reduced operations costs)
• Differentiation strategy


  • Apple Computer (builds market demand and loyalty, strives to establish leading-edge electronic devices)
• How compensation practices differ between IKEA and Prada

  Compensation practices differ to support the different business strategies
• How is compensation related to recruitment and selection, performance appraisal and training and development

  Compensation practices support and are supported by these other HR functions
• Extrinsic compensation


  Monetary and nonmonetary rewards
• Building blocks of compensation systems

  • Core compensation
  • Adjustments to core compensation
  • Legally required employee benefits
  • Discretionary employee benefits
• Base pay


  Hourly wage or annual salary, determined by compensable factors like skill level, effort, level of responsibility, and working conditions
• Base pay adjustments


  • Cost-of-living adjustments (COLAs)
  • Seniority pay
  • Merit pay
  • Incentive pay
  • Pay-for-knowledge plans
  • Skill-based pay
• Employee benefits


  • Discretionary benefits
  • Legally required benefits
• Discretionary benefits


  • Protection programs, paid time-off, and services
• Legally required benefits


  • Promote worker safety and health, maintain family income, assist families in crisis, provide assistance in case of disability or unemployment
• 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."'
• Fundamental compensation system design elements

  • Internal consistency, market competitiveness, recognition of employee contributions
• Internal consistency


  The value of each job is clearly defined through job structure, hierarchy, job analysis, and job evaluation
• Market competitiveness


  Compensation policies that fit with business objectives, vital in attracting and retaining employees, based on strategic analyses and compensation surveys
• Individual contributions


  Pay structures, pay grades, and pay ranges that reflect different levels of employee value
• Stakeholders of the compensation function

  • Employees
  • Line managers
  • Executives
  • Unions
  • Government
• Incentive pay


  • Compensation varies according to the achievement of individual, group or company goals
  • Adds to base pay on a non-recurring basis
  • Is designed to control costs (i.e., only payout if the goals are met)
  • Should attract/retain high performers and motivate employees to perform well
• Traditional pay


  Increases base pay (depending on seniority or merit) with permanent increases to pay
• Incentive pay


  Increases pay on a "one time" basis depending on the accomplishment of specific goals
• Incentive pay categories


  • Individual
  • Group
  • Company
• Individual incentive plans


  • Reward independent performance
• Group incentive plans


  • Promote collaborative behavior among employees
• Company-wide incentive plans


  • Tie employee compensation to the performance of the overall organization
• Piecework plans


  Reward workers for every item produced over a designated production standard
• Bonus plans


  Award bonuses to managers or professionals when they meet financial (e.g., sales) or other objectives (e.g., complete all projects)
• Spot bonuses


  Employees receive small monetary gifts for outstanding work or effort during a reasonably short time period (e.g., a Dhs500 gift certificate for working extra hours on a special project)
• Piecework award calculation for a garment worker

  • Guaranteed hourly base pay
  • Piecework award (No. of garments stitched above the piecework standard x Piecework incentive award)
  • Total hourly earnings
• Individual incentive plan advantages

  • Helps link pay to performance
  • Promotes fair distribution of compensation
  • Helps attract and retain best performers
• Individual incentive plan disadvantages

  • Unrealistic standards may lower employee motivation
  • Setting performance standards is time consuming
  • Factors beyond an employee's control may affect outcomes
• Group incentive plans


  • Reward employees for their collective performance
  • Team or group incentives have increased recently
• Types of teams


  • Work (process) teams
  • Project teams
  • Parallel teams (task forces)
• Reward allocation methods


  • Equal payments to all members
  • Differential payments based on contribution to the goals
  • Differential payments according to base pay (e.g., each member gets 5% of his or her base pay)
• Advantages of group incentives

  • It is often easier to develop performance goals for groups than it is for individuals
  • Can improve teamwork or group cohesion
• Disadvantages of group incentives

  • Members may feel uncomfortable with the fact that other members' performance influences their compensation level
  • May lead to higher turnover because of the "free-rider" effect