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

2. “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

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

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

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

6. 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

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

8. 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

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

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

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

12. 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

13. Figure 2-1 NAICS Code Elements3 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

14. 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

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