1. Prentice Hall, Inc. © 2006 1-1 A Human Resource Management Approach STRATEGIC COMPENSATION Prepared by David Oakes Chapter 1 Strategic Compensation: A Component of Human Resource Systems

2. Prentice Hall, Inc. © 2006 1-2 What Is Compensation  Compensation represents the rewards employees receive for performing their job, are either:  Intrinsic  Extrinsic

3. Prentice Hall, Inc. © 2006 1-3 5 Core Job Dimensions  Skill variety  Task identity  Task significance  Autonomy  Feedback

4. Prentice Hall, Inc. © 2006 1-4 Elements of Core Compensation  Base Pay Hourly pay Annual salary  Base pay adjustments COLAs Skill-based pay Merit pay Incentive pay Pay-for-knowledge Seniority pay

5. Prentice Hall, Inc. © 2006 1-5 Four Compensable Factors  An employee’s skill level  An employee’s effort  An employee’s level of responsibility  The severity of the working conditions

6. Prentice Hall, Inc. © 2006 1-6 Legally-Required Benefits Federal Legislation Designed to:  Promote worker safety and health  Maintain family income  Assist families in crisis  Provide assistance in case of  Disability  Unemployment

7. Prentice Hall, Inc. © 2006 1-7 Discretionary Benefits Three Broad Categories  Protection programs  Pay -for-time-not-worked  Services

8. Prentice Hall, Inc. © 2006 1-8 Compensation Benefits Costs W.C. B.C. Service Benefit $ / % $ / % $ / % Total 28.02/100 20.41/100 13.09/100 Base Pay 20.57/73.4 14.14/69.3 9.60/73.3 Dscry 5.37/19.6 4.30/21.0 2.29/17.5 LRBs 1.94/6.9 1.95/9.6 1.19/9.1

9. Prentice Hall, Inc. © 2006 1-9 Compensation Costs TOTAL BASE PAY DISCRY BENEFIT LRB ALL$25.75$18.07$5.61$2.07 MGMT / PROFL $41.91$30.11$9.81$2.79 SALES/ OFFICE$19.39$13.96$3.86$1.57 SERVICE$14.26$10.23$2.68$1.35

10. Prentice Hall, Inc. © 2006 1-10 Strategic Activities  Strategic decisions - Guide the activities of companies in the market  Strategic management - Entails judgments that direct a company toward achieving specific goals  Strategic planning - Supports business objectives

11. Prentice Hall, Inc. © 2006 1-11 Competitive Strategy  The planned use of company resources  2+ years time span  Choices  Lowest cost strategy  Differentiation strategy

12. Prentice Hall, Inc. © 2006 1-12 Competitive Strategy Choices  Lowest Cost: Focus on being lowest cost producer/ seller of goods or services  Differentiation: Focus on offering unique goods or services

13. Prentice Hall, Inc. © 2006 1-13 Lowest-Cost Strategy Effective when Jobs  Include predictable behaviors  Have a short-term focus  Require autonomous activity  Focus on quantity of output

14. Prentice Hall, Inc. © 2006 1-14 Differentiation Strategy Effective when Jobs:  Require highly creative behaviors  Have a long-term focus  Demand cooperation & independence  Involve risk-taking

15. Prentice Hall, Inc. © 2006 1-15 Human Resources Responsibilities  Recruitment  Selection  Performance appraisal  Training  Career development  Labor- management relations  Employment termination  Insuring legal compliance

16. Prentice Hall, Inc. © 2006 1-16 Employment Termination Two Types :  Involuntary  Terminated  Laid - off  Voluntary  Quit  Retired

17. Prentice Hall, Inc. © 2006 1-17 Legislation Themes  Income continuity, safety work hours  Pay discrimination  Meeting disabled & family needs  Prevailing wage

18. Prentice Hall, Inc. © 2006 1-18 Employment Legislation  Davis – Bacon Act  Fair Labor Standards Act  Equal Pay Act  Civil Rights Act  Pregnancy Discrimination Act  Americans with Disabilities Act  Family and Medical Leave Act

19. Prentice Hall, Inc. © 2006 1-19 Compensation Goals  Internal consistency  Market competitiveness  Recognizing individual efforts

20. Prentice Hall, Inc. © 2006 1-20 Internal Consistency Achieved when the value of each job is clearly defined  Represents:  Job structure  Hierarchy  Achieved using:  Job analysis  Job evaluation

21. Prentice Hall, Inc. © 2006 1-21 Market Competitiveness  Compensation policies that fit with business objectives  Vital in attracting and retaining employees  Are b ased on:  Strategic analyses  Compensation surveys

22. Prentice Hall, Inc. © 2006 1-22 Individual Contributions  Pay Structures: Pay is determined by employee’s credentials, job knowledge, and job performance  Pay Grades: Based on compensable factors and value  Pay Ranges: Builds on grades, uses midpoints, minimums, and maximums

23. Prentice Hall, Inc. © 2006 1-23Stakeholders Individuals or entities directly affected by compensation practices, like  Employees  Line managers  Executives  Unions  U.S. government