1 Strategic Compensation

2 The Challenge To align the deployment of human capital with company strategy

3 Environmental Factors Affecting Pay Strategy n Sociocultural Forces n Demographic Forces n Technological Forces n Economic Forces n Legal and Political Forces

4 Porter’s Five Forces n Threat of new entrants to the market n Bargaining power of the firm’s suppliers n Bargaining power of the firm’s customers n Threat of Substitute products n Intensity of rivalry among competing Firms

5 Rivalry Among Firms Price competition Product Innovation Product Differentiation Threat of New Entrants Supplies Bargaining Power Buyers Bargaining Power Threat Of Substitutes Porter’s Five Forces Model of Competition

6 Organizational Factors Affecting Pay Strategy n Mission n Competitive Strategy n Leadership n Culture n Organizational Demographics n Labor Market n Degree of globalization

7 Task Environment n Labor Market n Product Market n Competition n Stakeholder Demands n Degree of globalization

8 Components Of Compensation n Base Pay n Merit Pay n Variable Pay u Incentive Pay u Pay At Risk u Bonuses u Gain sharing u Profit sharing n Benefits

9 Strategic HR Choices n Options available in designing its human resources systems n Strategic to the extent they affect firm performance favorably or unfavorably in the long run

10 Strategic Approaches 4 Market Life Cycle 4 Competitive Strategy 4 Miles and Snow Topology

11 Market Life-Cycle Corporate Strategies n Start-up n Growth n Maturity n Decline n Turnaround Model #1

12 Start-Up n Harnessing resources u Money u People u Facilities and Supplies u Customers n Overcoming barriers to entry n Building customer loyalty

13 Growth Firms n Aggressive growth n Demand outstrips supply n Evolution u Acquisitions, u Mergers, u Joint ventures n Willing to purchase and divest businesses

14 Mature n Stay with industry n Market penetration n Shake-out n High product similarity n Fight for survival

15 Decline n Cost Reduction n Preserve/recoup Market share n Internal efficiencies n Divestment n Niche n Harvesting

16 Turnaround n Evaluation n Cutting and pruning n Building n Nurturing

17 Business Strategies 4Overall cost leadership 4Innovation 4Quality enhancement 4Combined strategy Model #2

18 Overall Price Leadership n Competitive advantage through lower costs. n Financial/accounting driven. n Sustained capital investment n Low cost distribution system n Tight cost control, detailed reports n Structured organizations n Products designed for ease of manufacturing

19 Innovation n Focus on the product or service uniqueness. n Strong market ability n Product engineering n Basic research n Corporate reputation for quality or technology n Amenities to attract skilled labor, scientists, & creative people

20 Quality n Focus on providing quality service that specifically meets the needs of the customer n Philosophy of Quality n Continuous Improvement n Quality measurement through Statistical Process Control n Goal setting and monitoring n Doing it right the first time

21 Combination Attempts to minimize costs by focusing on a specialized market slot with specialized pricing. Alternatively, focuses on cost reduction through quality workmanship u Illinois Tool Works -- Fasteners u Gymboree -- creative activities for little kids

22 Balancing Three Types Of Equity n

23 Miles and Snow Topology 4Defenders 4Prospectors 4Analyzers 4Reactors Model #3

24 Defenders n Narrow Line of products n Defend Market Position Against Anyone u Cigarette companies u Coca Cola u Intel Model #3

25 Prospectors n New Market Opportunities n Aggressive search out new products n Innovation and new product development n Examples u Amazon.com u 3M Company Model #3

26 Analyzers n One product in a stable market and one product in a changing market n Examples u Schering-Plough Corporation u Stable drug Garamycin u Mainly me-too copy drugs u Interferon in new market Model #3

27 Reactors n Major changes in environment n Slow to Reactor n Examples u Bethlehem Steel u The Boeing Company Model #3