Session 5

Strategic compensation management

 Some recent evidences from fortune 500
• Retention Is a Growing Concern but Not Enough to Stray Far
From 3 percent

• The Vast Majority of Organizations Use Two Or More Sources of

Market Data

• Employers Make Greater Use of Benefits and Perks to Hire and

Retain

• Organizations Are Challenged in Their Quest to Develop a Solid

Pay Brand

• Most Organizations Are Still Wary of Sharing Pay Ranges With

Their Employees
 Pay & reward strategy
• An intent that what the organization wants to do in the longer
term to develop and implement reward policies, practices and
processes.

• It should:
– Should underpinned by a reward philosophy i.e. organization’s belief
– Provide sense of purpose and direction
– Based on the understanding of needs of the employees and
organization
– Concerned on how people should be rewarded
 Why to have a pay and reward strategy?
• Sense of direction
• Link between pay and performance
• Cost to company
• Linkages with other HR policies
 Strategic Compensation Decisions

• Compensation professionals provide a strategic contribution when they can

answer yes to 3 questions:

– What are the competitive business strategy options and does

compensation strategy fit well with the objectives of company
competitive business and HR strategies?

– Does the choice and design of compensation practices fit well to support
compensation strategy?

– Does the implementation of compensation practices effectively direct

employee behavior to enhance job performance that supports the choice
of compensation practices?
 Compensation as a Strategic Business Partner
Compensation professions can leverage the value of human capital in a
variety of ways:
– Well-designed merit pay and incentive programs, which reinforce
excellent job performance
– Incentive programs which reduce employee entitlement
– Person-focused pay which is based on extensive employer-sponsored
training that enables employees to work in changing environments
 Structure of pay and reward strategy
• A statement of intentions: what it proposed to achieve
• A rationale: why, make business case for proposal, indicates
how this will meet business needs, costs and benefits,
• A plan: how, when and by whom these initiatives will be
implemented, resource constraints, communication strategy,
etc.
• Guidelines and principles: values and guidelines of strategy
formulation and implementation
 Content of pay and rewards strategy
• Broad brush strategy or total rewards management: balance
between financial and non financial rewards, developing
employee relationships and work environment, engagement,
opportunities.
– Example: clarifying what behavior will be rewarded and why,
rewarding people for their contribution etc.
• Specific pay & reward initiatives:
– Replacement of contingent pay with a pay for contribution
– Introduction of a formal recognition scheme
– Development of a flexible benefits system
– Communication strategies
 Developing reward strategy
• Diagnosis, design, testing, implementation and review