, CHAPTER 1
Strategic Compensation: A Component of Human Resource Systems
Learning Objectives
1-1. Define strategic compensation.
1-2. Summarize the role of compensation as a strategic business partner.
1-3. Explain strategic compensation decisions.
1-4. Identify and discuss the building blocks and structural elements of strategic
compensation systems.
1-5. Describe the fit of the compensation function in organizations.
1-6. Identify the stakeholders of the compensation function and summarize their stakes
in the work compensation professionals perform.
1-7. Explore essential skills for developing your career in compensation or any other
career path.
Outline
I. Overview
II. Defining Strategic Compensation
III. Compensation as a Strategic Business Partner
IV. Strategic Compensation Decisions
V. Building Blocks and Structure of Strategic Compensation Systems
VI. Fitting the Compensation Function in an Organization’s Structure
VII. Stakeholders of the Compensation System
VIII. Developing Skills for your Career
IX. Key Terms
X. Discussion Questions and Suggested Answers
XI. Preparing for My Career: Compensation in Action
XII. End of Chapter Cases; Instructor Notes, and Questions and Suggested Student
Responses
XIII. Crunch the Numbers! Questions and Suggested Student Responses
XIV. Working Together: Team Exercise with Suggested Student Responses
XV. Assisted-Graded Questions
XVI. Additional Case from the MyLab Management website; Instructor Notes and
Questions and Suggested Student Responses
, Lecture Outline
I. Overview
A. Manpower planning
1. Predecessor to contemporary human resource management, focus was on
effective deployment of employees
2. Goal was to achieve maximum productivity per employee
B. Personnel management
1. Evolved due to government regulations concerning:
a. Payroll taxes
b. Minimum wage laws
c. Antidiscrimination laws
2. Competitive advantage
a. Since 1980’s recognition that employees can contribute to competitive
advantage
b. Competitive advantage describes a company’s success when the
company acquires or develops capabilities that facilitate outperforming
the competition
c. HR becomes a strategic function
II. Defining Strategic Compensation
A. What Is Compensation?
1. Intrinsic and extrinsic rewards employees receive for performing their jobs
a. Intrinsic compensation: Reflects employees’ psychological mindsets
that result from performing their jobs
b. Extrinsic compensation: Includes both monetary and nonmonetary
rewards for:
i. Obtaining certain job performance levels
ii. Acquiring new skills and knowledge
2. Monetary compensation represents core compensation
3. Nonmonetary rewards (also known as employee benefits) include:
a. Protection programs (e.g., medical insurance)
b. Paid time off (e.g., vacations)
c. Services (e.g., daycare assistance)
4. Both monetary and nonmonetary compensation represents costs to
companies
, B. What is Strategic Compensation?
1. Competitive business strategy refers to the planned use of company
resources
2. Human resource strategies specify the use of multiple HR practices to
reinforce competitive business strategy.
3. Strategic compensation refers to the design and implementation of
compensation systems to reinforce the objectives of both HR strategies
and competitive business strategies
III. Compensation as a Strategic Business Partner
A. HR and compensation professionals today need to think like the chief
executive officer (CEO) to become a strategic partner in achieving
organizational plans and results
B. Compensation professionals can give the CEO and CFO an understanding of
the roles employees play in the organizations to expand or shrink shareholder
value
C. How HR functions serve as strategic business partner
1. Capital refers to factors that enable companies to generate income, raise
stock prices, bring economic value, strong brand identity, and reputation
2. Human capital, refers to sets of collective skills, knowledge, and abilities
that employees can apply to create value for their employers
D. Compensation professionals can leverage the value of human capital in a
variety of ways such as a well-designed merit pay program to reinforce
performance
IV. Strategic Compensation Decisions
A. Environmental scanning
1. Used for strategy formulation
2. Main focus is discerning threats and opportunities
B. Competitive business strategy choices
1. Lowest-cost strategy or cost leadership focuses on gaining completive
advantage by being the lowest-cost producer of a product or service within
the marketplace
2. Differentiation strategies develop products or services that are unique
from those of their competitors
C. Compensation decisions that support the firm’s strategy
1. Compensation professionals use two broad elements to support strategic
initiatives
a. Basic building blocks
b. Structural design elements
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