Strategy: The Totality of Decisions Chapter 3

The flow…. Similarities and differences in strategies Strategic choices The pay model guides strategic pay decisions Developing a total compensation strategy

Compensation strategies …. Google Popular internet search engine company Merrill Lynch Financial services firm that advises companies and clients worldwide Similarities Both are innovators in their industry Both formulate their pay strategy to support their business strategy Both emphasize outstanding employee performance and commitment

differences in strategies Google Merrill Lynch Emphasis on innovation Commitment to cost containment Recognize contributions Attract and reward the best Focus on customer Attract, motivate and retain the best talent Fair, understandable policies and practices Objectives Pay fairly with ML Job sized on 4 factors: knowledge /skill, complexity, business impact, strategic value Minimize hierarchy Everyone wears several hats Emphasize collaboration Internal alignment Different strategies in different industries

Different strategies in different industries Google Merrill Lynch Explore novel ideas in benefits and compensation Generous unique benefits Market competitive in base and benefits Market leader in bonus and stock Externally competitive Bonus based on individual, unit and company success Differentiate on bonuses and stock In high profit years, top bonuses significantly larger In less profitable years, top performers’ bonuses decrease much less than poorer performers Recognize individual contributions Unrivaled stock programs Employee contributions Understandable, consistent message Intranet support both individual and managers Love employees, want them to know it Technology support Management Different strategies in different industries

Different strategies within the same industry Microsoft, SAS, Google Different strategies within the same company

Dell computers Dell computers wanted to ensure that HR objectives fulfill the objectives of both employees and the organization, Dell required an HR department that could partner with the company’s business units. Dell divided HR into 2 areas-operations and mgt HR operations dealt with the supporting employees in general HR management team identifies personnel needs, determines lines of reporting and formulates organizational charts…. Accountability and roles of dell employees are clear Dell creates a culture of ownership and develops “shared vision”.

Strategic choices Corporate objectives, strategic plans, vision and values What business should we be in? Business unit strategies How do we win (gain competitive advantage) in those businesses? HR Strategies How should HR help us win? How should total compensation help us win? Social, competitive and regulatory environment Strategic compensation decisions Compensation systems Employee attitudes and behaviors Competitive advantage

Tailor the compensation system to the strategy HR program alignment Compensation systems Strategy Business response Reward innovation in products and processes Market – based pay Flexible-generic job descriptions Innovator: Increase product complexity and shorten product lifecycle Product leadership Shift to mass customization Cycle time Committed to agile, risk taking, innovative people Focus on competitor’s labor costs Increase variable pay Emphasize productivity Focus on system control and work specifications Operational excellence Pursue cost-effective solutions Do more with less Cost cutter: Focus on efficiency Customer focused: Increase customer expectations Deliver solutions to customers Speed to market Delight customer, exceed expectations Customer satisfaction incentives Value of job and skills based on customer contact

Developing a total compensation strategy Step 1 Assess total compensation implications Step 2 Map a total compensation strategy Step 3 Implement strategy Step 4 Reassess

Steps in formulating compensation strategy Step 1 Assess total compensation implications Competitive dynamics Culture / values Social and political context Employee/union needs Other HR systems

Our Values Act with uncompromising honesty and integrity in everything we do. Satisfy our customers with innovative technology and superior quality, value and service. Provide our investors an attractive return through sustainable, global growth. Respect our social and physical environment around the world. Value and develop our employees' diverse talents, initiative and leadership. Earn the admiration of all those associated with 3M worldwide.

Steps in formulating compensation strategy Step 2 Map a total compensation strategy Objectives Alignment Competitiveness Contributions Management

Contrasting maps of Microsoft and SAS LOW HIGH SAS OBJECTIVES Prominence Microsoft Flexible design INTERNAL ALIGNMENT Hierarchy Career growth How much COMPETITIVENESS What forms Work/life balance Incentives to base EMPLOYEE CONTRIBUTIONS Individual Share group success Line ownership Transparency MANAGEMENT Technology Choice Contrasting maps of Microsoft and SAS

Steps in formulating compensation strategy Step 3 Implement strategy Design system to translate strategy into action Choose techniques to fit strategy Step 4 Reassess Realign as conditions change Realign as strategy change