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Strategic Compensation

Strategic Compensation. The Challenge. To align the deployment of human capital with company strategy. Environmental Factors Affecting Pay Strategy. Sociocultural Forces Demographic Forces Technological Forces Economic Forces Legal and Political Forces. Porter’s Five Forces.

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Strategic Compensation

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  1. StrategicCompensation

  2. The Challenge To align the deployment of human capital with company strategy

  3. Environmental Factors AffectingPay Strategy • Sociocultural Forces • Demographic Forces • Technological Forces • Economic Forces • Legal and Political Forces

  4. Porter’s Five Forces • Threat of new entrants to the market • Bargaining power of the firm’s suppliers • Bargaining power of the firm’s customers • Threat of Substitute products • Intensity of rivalry among competing Firms

  5. Porter’s Five Forces Model of Competition Threat of New Entrants Rivalry Among Firms Price competition Product Innovation Product Differentiation Supplies Bargaining Power Buyers Bargaining Power Threat Of Substitutes

  6. Organizational Factors AffectingPay Strategy • Mission • Competitive Strategy • Leadership • Culture • Organizational Demographics • Labor Market • Degree of globalization

  7. Task Environment • Labor Market • Product Market • Competition • Stakeholder Demands • Degree of globalization

  8. Components Of Compensation • Base Pay • Merit Pay • Variable Pay • Incentive Pay • Pay At Risk • Bonuses • Gain sharing • Profit sharing • Benefits

  9. Strategic HR Choices • Options available in designing its human resources systems • Strategic to the extent they affect firm performance favorably or unfavorably in the long run

  10. Strategic Approaches • Market Life Cycle • Competitive Strategy • Miles and Snow Topology

  11. Model #1 Market Life-CycleCorporate Strategies • Start-up • Growth • Maturity • Decline • Turnaround

  12. Start-Up • Harnessing resources • Money • People • Facilities and Supplies • Customers • Overcoming barriers to entry • Building customer loyalty

  13. Growth Firms • Aggressive growth • Demand outstrips supply • Evolution • Acquisitions, • Mergers, • Joint ventures • Willing to purchase and divest businesses

  14. Mature • Stay with industry • Market penetration • Shake-out • High product similarity • Fight for survival

  15. Decline • Cost Reduction • Preserve/recoup Market share • Internal efficiencies • Divestment • Niche • Harvesting

  16. Turnaround • Evaluation • Cutting and pruning • Building • Nurturing

  17. Model #2 Business Strategies • Overall cost leadership • Innovation • Quality enhancement • Combined strategy

  18. Overall Price Leadership • Competitive advantage through lower costs. • Financial/accounting driven. • Sustained capital investment • Low cost distribution system • Tight cost control, detailed reports • Structured organizations • Products designed for ease of manufacturing

  19. Innovation • Focus on the product or service uniqueness. • Strong market ability • Product engineering • Basic research • Corporate reputation for quality or technology • Amenities to attract skilled labor, scientists, & creative people

  20. Quality • Focus on providing quality service that specifically meets the needs of the customer • Philosophy of Quality • Continuous Improvement • Quality measurement through Statistical Process Control • Goal setting and monitoring • Doing it right the first time

  21. Combination Attempts to minimize costs by focusing on a specialized market slot with specialized pricing. Alternatively, focuses on cost reduction through quality workmanship • Illinois Tool Works -- Fasteners • Gymboree -- creative activities for little kids

  22. Balancing Three Types Of Equity

  23. Model #3 Miles and Snow Topology • Defenders • Prospectors • Analyzers • Reactors

  24. Model #3 Defenders • Narrow Line of products • Defend Market Position Against Anyone • Cigarette companies • Coca Cola • Intel

  25. Model #3 Prospectors • New Market Opportunities • Aggressive search out new products • Innovation and new product development • Examples • Amazon.com • 3M Company

  26. Model #3 Analyzers • One product in a stable market and one product in a changing market • Examples • Schering-Plough Corporation • Stable drug Garamycin • Mainly me-too copy drugs • Interferon in new market

  27. Model #3 Reactors • Major changes in environment • Slow to Reactor • Examples • Bethlehem Steel • The Boeing Company

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