1. Strategic Compensation: Attaining a Competitive Advantage
Chapter Two
Strategic Compensation: Attaining a Competitive Advantage

2. Background Historical perspective
Scientific management, time and motion studies
Welfare practices, federal and local laws
Competitive advantage (firm’s ability to maintain market share and profitability over a sustained period of several years.)
Compensation—promoting more-productive and highly skilled work forces. Merit pay to reinforce performance. Incentives to connect pay and work. Pay for knowledge. Discretionary benefits.
Technology, job design, global competition

3. Strategic vs Tactical Compensation
Competitive strategy choices
Cost leadership
Differentiation
Tactical decisions that support the firm’s strategy
Human resource tactics
Tactics in other functional areas

4. Exhibit 2-1 Relationship Between Strategic and Tactical Decisions
Competitive strategy
Human resource strategy
Compensation strategy
General
Strategic
Decisions
General
Tactical HR
Decisions
Recruitment
Selection
Performance appraisal
Compensation
Training
Specific
Tactical HR
Decisions
(Comp.
Examples)
Seniority pay
Merit pay
Incentive pay
Pay-for-knowledge
Discretionary benefits options
Skill-based pay
Broadbanding
Two-tier pay structures
Specific

5. Exhibit 2-3 Influences on Competitive Strategy
National Culture
Power distance
Individualism-collectivism
Uncertainty avoidance
Masculinity-femininity
Organizational Culture
Traditional organizational hierarchy
Flatter organizational structures
Team orientation
Organizational & Product Life Cycle
Growth
Maturity
Decline

6. Exhibit 2-4 Traditional Organizational Structure
Chief
Exec. Officer
President
Executive VP VP
Accounting VP
Finance VP HR VP
Mfg. VP
Marketing
Director
Accounting
Director
Finance
Director HR
Director
Mfg.
Director
Marketing
Manager
Accounting
Manager
Finance
Manager HR
Manager
Mfg.
Manager
Marketing

7. Exhibit 2-7 Factors That Lead to Dysfunctional Turnover
General Economic Conditions
Turnover
increases when general economic conditions are favorable.
Labor Market Conditions
Turnover
increases when demand for employees increases.
Personal Mobility
Turnover
increases with fewer family responsibilities.
Job Security
Turnover
increases when employees believe job security is better in other companies.

8. Exhibit 2-5 Designing Pay-for-Knowledge Programs
Establishing Skill Blocks
Skill type
Number of skills
Grouping of skills
Transition Matters
Skills assessment
Aligning pay with the knowledge structure
Access to training
Training and Certification
In-house or outsourcing training
Certification and recertification

9. Annual Salary Band A Band B Low High Job Worth Grade E Grade D Grade C
Exhibit 2-6 Broadbanding Structure and Its Relationship to Traditional Pay Grades and Ranges
Grade E
Grade D
Annual Salary
Grade C
Grade B
Grade A
Band A
Band B
Low
High
Job Worth