NETA PowerPoint® Slides to accompany Prepared by Cheryl Dowell, Algonquin College, and Greg Cole, Saint Mary’s University

A Strategic Framework for Compensation Chapter 2 A Strategic Framework for Compensation Copyright © 2014 by Nelson Education Ltd. 2-2

Chapter Learning Objectives Explain why the same compensation system that is a success in one firm can be a failure in another. Describe an organizational system. Explain how the strategic framework for compensation can be used as a tool designing effective reward and compensation systems. Describe the three main sets of elements in the strategic compensation framework, and explain how they relate to one another. Copyright © 2014 by Nelson Education Ltd.

Chapter Learning Objectives Describe the three main managerial strategies that organizations can adopt, and explain the implications for the most effective reward and compensation system. Describe the five main determinants of managerial strategy, and explain how they can be used to select the most appropriate managerial strategy. Analyze any organization to determine the most appropriate managerial strategy for that organization to adopt. Discuss how conditions in North America changed during the 20th century, and explain how this has affected today’s managerial and compensation strategies. Copyright © 2014 by Nelson Education Ltd.

A Tale of Two Firms: L-S Electro-Galvanizing (LSE) and Koch Foods Which compensation system is the most effective? Copyright © 2014 by Nelson Education Ltd. 2-5

Organizations as Systems Corporate strategy Organization structure Technology Copyright © 2014 by Nelson Education Ltd.

Organizations as Systems Copyright © 2014 by Nelson Education Ltd.

Strategic Compensation Framework Copyright © 2014 by Nelson Education Ltd.

Managerial strategies Classical Human relations High involvement Copyright © 2014 by Nelson Education Ltd.

Managerial Strategies and Reward Systems Classical managerial strategy: Thinking is completely separate from doing. Human relations: Similar to the previous approach in terms of job design, although management attempts to arrange jobs to allow social interactions among employees. High involvement: A major effort is made to create jobs that are both interesting and challenging and that provide workers with autonomy. Copyright © 2014 by Nelson Education Ltd.

Organizational Culture: A Guide to Employee Behaviour Understandings Core values Guiding beliefs Copyright © 2014 by Nelson Education Ltd.

Determinants of the Most Appropriate Managerial Strategy Contextual variables Environment Corporate strategy Technology Size of the organization Nature of the workforce Copyright © 2014 by Nelson Education Ltd.

Miles and Snow Typology of Corporate Strategy Defender dominating a narrow product or service market segment Prospector identifying and exploiting new opportunities quickly Analyzer exploiting new opportunities at a relatively early stage while maintaining a base of traditional products or services Reactor firms that do not practise any distinct overall strategy Copyright © 2014 by Nelson Education Ltd.

Porter’s Typology of Corporate Strategy Low cost depends on providing low-cost products or services to a broad range of customers Focused low cost depends on providing low-cost products or services to a narrow range of customers Differentiator depends on providing unique products or services to a broad range of customers Focused differentiator depends on providing unique products or services to a narrow range of customers Copyright © 2014 by Nelson Education Ltd.

Thompson’s Typology of Technology Long-linked: divides the total task of producing a product or service into a series of small sequential steps performed by different employees Mediating: uses standardized transactions to connect parties wishing a mutually beneficial relationship Intensive: requires that each item or case be dealt with individually, depending on the specific nature of each case Copyright © 2014 by Nelson Education Ltd.

Perrow’s Typology of Technology Routine technology: Few exceptions occur during the production process, and those exceptions that do occur can be dealt with in a standardized way. Nonroutine technology: Many exceptions are inherent in the production process, and there is no standardized way to deal with these exceptions. Craft technology: Few exceptions occur in the production process, and there is no standardized way to deal with them when they do occur. Engineering technology: Many exceptions occur in the production or service delivery process, but there are standardized ways of dealing with them. Copyright © 2014 by Nelson Education Ltd.

Woodward’s Typology of Technology Unit/small batch technology: manufacturing technology that produces one-of-a-kind items or small batches of unique items Mass/large batch technology: manufacturing technology that produces large amounts of single items in a standardized way Process technology: manufacturing technology that produces a single product in a continuous flow Copyright © 2014 by Nelson Education Ltd.

Managerial Strategies for Organizations Contextual variable Classical Human relations High involvement Thompson’s Typology Long-linked Mediating Intensive Perrow’s Typology Routine Routine or engineering Craft or nonroutine Woodward’s Typology Mass Process Process or unit Product Transformed Things People Ideas Copyright © 2014 by Nelson Education Ltd.

Organization Size Large organizations generally use classical or human relations strategies. It is easier to implement high involvement in a small- to medium-sized organization because the larger the organization, the greater the need for some formal structure. Hewlett-Packard, the computer products firm, has traditionally used this approach. Copyright © 2014 by Nelson Education Ltd.

The Nature of the Workforce Highly skilled, well-educated, or professional employees are more suited to the high-involvement organization. A high-involvement strategy requires these characteristics because of the broad job and decision-making responsibility expected of employees. Classical organizations are specifically designed to utilize employees with relatively low skill levels, and because of their approach to motivation and control, these organizations are most suited to workers who badly need the money the job provides. Copyright © 2014 by Nelson Education Ltd.

Trends in Managerial and Compensation Strategies All three managerial strategies can be effective if used in the right context. But how are circumstances changing in North America, and how will these changes affect the optimal choice of managerial strategy? Copyright © 2014 by Nelson Education Ltd.

The Evolution of Managerial Strategies Fundamental socioeconomic changes have taken place in Canada, which have created conditions that are more suitable for high-involvement organizations and less suitable for classical and human relations organizations. Educational levels have increased, economic security and social security have improved, and social values have become more democratic and egalitarian. Copyright © 2014 by Nelson Education Ltd.

The Evolution of Managerial Strategies All of these conditions work against classical and human relations organizations. Many classical firms have found developing countries a much better fit for their preferred managerial strategy and have moved operations there. Human relations organizations tend to be as rigid and inflexible as classical organizations. Copyright © 2014 by Nelson Education Ltd.

Useful Links Canadian HR Reporter: http://www.hrreporter.com WorldatWork:http://www.worldatwork.org/waw/home/html/compensation_home.jsp Copyright © 2014 by Nelson Education Ltd.

Discussion Questions “If a compensation system works well for one business, that same compensation system should also work well for other businesses.” Discuss whether this statement is true. Discuss why it is important to understand which managerial strategy a firm is practising before designing a compensation system for that firm. Discuss recent trends in compensation practices taking place in North America and explain what may be causing those trends. Copyright © 2014 by Nelson Education Ltd.