Learn how competitive strategy and compensation strategy complement each other. Learn how to map a total rewards strategy by identifying objectives, differences in pay by job or skills, external competitiveness, adjustments in pay, and management of the overall compensation system.
- Would a great coach ever go into a game or match without a strategy to win? Would a great General ever engage the enemy without a battle plan? Of course not. And just as you need strategies to win at sports and in battle, you also need them to succeed in business. In a business setting, strategy refers to the decisions, processes and choices firms make to position themselves for long-term success. It answers questions such as why should customers buy from you? What do you do better than anyone else? What do you offer that's valuable, rare, difficult to imitate? If you're going to be part of your company's long-term success, it's important that you understand the connection between an organization's competitive strategy and its compensation strategy.
Competitive strategy is about being distinctive by providing a superior product or service in the eyes of the customer. And it might include developing products or services that no other competitor can match such as a patent protected miracle drug. Offering the cheapest products and services or the highest quality. Or maybe you offer the fastest order fulfillment process or superior customer service. The challenge is to align the entire organization to execute that strategy effectively.
The company's compensation strategy must compliment and align closely with competitive strategy. To do that well, the company maps a total compensation strategy by answering some key questions. What objectives do you want your compensation strategy to achieve? Does your company want to be viewed as a fun place to work to provide special benefits to employees? Does your company demand a lot from its employees but pay much higher than its competitors? How should the different levels of skills and work be paid within your organization? Do you want to establish differences in pay based on the relative worth of the jobs that people do or on the skills and competencies that they have to demonstrate to do their work? How should we position our total compensation compared to competitors? For example, do we want to lead, lag or match going rates of pay across the various jobs in our organization? How should pay increases be determined? Should they be based on individual or team performance on experience or on improved skills? Or should increases be based on each business units performance or on changes in the cost of living? Who should be involved in designing and managing the system to ensure that it complies with legal requirements? And what information will you communicate to various groups in your organization? For example to executives, supervisors and employees? How open and transparent should paid decisions be to employees? Let's say you manage a fast food restaurant that is staffed primarily by teenagers.
To appeal to new employees, you focus on three themes. Fun, family and flexibility. So you offer a fun working environment where crews welcome new hires to their family that are extremely flexible with work hours. In addition, you choose to match the competition on pay and to offer all legally required benefits. You also offer opportunities for training. And as employees increase their skills, their pay rises accordingly.
In this example, you can see how compensation strategy aligns with and reinforces the restaurant's approach to competing for business in the marketplace. Taken together, decisions about these issues form a pattern that becomes your organization's compensation strategy.
- Competitive strategy and total compensation strategy
- The legal framework
- Pay structures
- External competitiveness in compensation and benefits
- Incentive plans
- Executive compensation
- Legally required employee benefits
- Life and health insurance
- International compensation