Chapter Two Strategic Compensation in Action: Strategic Analysis and Contextual Factors

“People are our most important asset” ORGANIZATIONS OFTEN CLAIM THAT: “People are our most important asset” But do people understand how the HR function influences firm performance? Are HR people seen as playing a key role in implementing the organization’s strategy? Does HR really matter? 1-3

What’s the perception of the HR function? Let’s identify the events that most often trigger the words “let’s ask human resources”: Event Perceived HR Role Discipline problems “The police” Personal problems “The counselor” Company’s party “The entertainer” Bureaucratic obstacles “The aparatchik” 1-4

WHAT DOES HR STRATEGIC ALIGNMENT MEAN? HR as an administrative function vs. HR as a strategic partner capable of enhancing the organization’s performance 1-5

HR as an investment, not an expense Conventional accounting was created at a time when tangible capital (financial & physical) was the primary source of profits. Today: Intangibles such as human capital are the primary source of profits. 1-8

Strategic Compensation Alignment of HR systems with the company’s strategy How can compensation (and other reward systems) play a role in executing the organization’s vision & strategy? 1-7

What does strategic alignment mean? + Compensationalignment Strategic Results _ _ + Behaviors 1-17

Strategy Theories Theory Primary mechanism Compensation implications Best practices Imitation-benchmarking Jump on the bandwagon… (stock options, skill-based pay, other fads) Contingency Environmental scanning Align compensation with environmental threats and opportunities Resource-based Competitive advantage Compensation for differentiation and unique skills

Elements of Competitive Strategy Organization Competitive advantage Barriers of entry? Easy to replicate? Suitable rewards system?

Compensation Policies & Strategic Mandates Policy Strategy Lead (how much?) 5, 10, 15%? Differentiation Match Lag (how much?) Cost 10

Table 2-1 NAICS Sectors (1 of 2) Code NAICS Sectors 11 Agriculture, Forestry, and Hunting 21 Mining 22 Utilities 23 Construction 31-33 Manufacturing 42 Wholesale Trade 44-45 Retail Trade 48-49 Transportation and Warehousing 51 Information 52 Finance and Insurance

Table 2-1 NAICS Sectors (2 of 2) Code NAICS Sectors 53 Real Estate and Rental and Leasing 54 Professional, Scientific, and Technical Services 55 Management of Companies and Enterprises 56 Administrative and Support and Waste Management and Remediation Services 61 Education Services 62 Health Care and Social Assistance 71 Arts, Entertainment, and Recreation 72 Accommodation and Food Services 81 Other Services (except Public Administration) 92 Public Administration

Figure 2-1 NAICS Code Elements 3 3 4 6 1 Sector: Manufacturing Subsector: Computer & Electronic Product Mfg. Industry Group: Mfg. & Reproduction of Magnetic and Optical Media Industry: For example, Manufacture of Blank Video and Audio Tapes

Table 2-2 Influences on Competitive Strategy (1 of 2) National Culture Power distance Individualism-collectivism Uncertainty avoidance Masculinity-femininity Organizational Culture Traditional organizational hierarchy Flatter organizational structures Team orientation

Table 2-2 Influences on Competitive Strategy (2 of 2) Organizational and Product Life Cycle Growth Maturity Decline