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A Human Resource A Human Resource Management ApproachManagement Approach

STRATEGIC STRATEGIC COMPENSATIONCOMPENSATION

Prepared by David Oakes

Chapter 2Chapter 2

Strategic Compensation in Strategic Compensation in Action: Strategic Analysis and Action: Strategic Analysis and

Contextual FactorsContextual Factors

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Fly - You - ThereFly - You - There

No-Frills commercial airlines Along west coast only Pursues a lowest-cost strategy Goal #1 or 2 airline by 2010 Union-free workforce NAICS # 48111

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Strategic AnalysisStrategic Analysis

Entails examination of company’s External market context

Internal factors

Begins with company’s industry classification using NAICS

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N A I C SN A I C S

5 Digit Codes for American, Canadian & Mexican industries

First 2 #s - Sector First 3 #s - Subsector First 4 #s - Industry group First 5 #s - Industry All 6 #s - American industries only

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NAIC SectorsNAIC Sectors

22 - Utilities

23 - Construction

31-33 - Manufacturing

44-45 - Retail trade 48-49 - Transportation & warehousing

71 - Arts, entertainment, & recreation

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NAICS # 713120NAICS # 713120

71 - Arts, entertainment & recreation 713 - Amusement, gambling & recreation 7131 - Amusement & theme parks

71312 - Video game arcades

713120 Non-hotel casinos

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Fly - You - There Fly - You - There NAICS #NAICS #

48111

48 - Transportation

481 - Air transportation

4811 - Scheduled air transportation

48111 - Scheduled passenger air transportation

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External Market ElementsExternal Market Elements

Industry profile

Competition

Foreign demand

Industry’s long-term prospects

Labor market assessment

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Industry ProfileIndustry Profile

Used to determine compensation

practices

Uses industry characteristics, like Sales volumes

Government regulations

Technology advancements

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Labor - Market ForecastsLabor - Market ForecastsBy Year 2012By Year 2012

From BLS Handbook Total employment up 15%to 21.3 M

Civil Workforce up 12% to 162.3 M

55 + Workers up 19.1% to 66%

Hispanic Workers up to 23.8M

Women Workers up 14.3% to 47.5%

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BLS Occupational Outlook BLS Occupational Outlook HandbookHandbook

Pertinent information includes:

Qualifications & training

Job outlook

Typical earnings range

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Internal CapabilitiesInternal Capabilities

Functional capabilities

Human resources capabilities

Financial condition

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Functional Capabilities IncludeFunctional Capabilities Include

Manufacturing Engineering Research & development Operations Management information systems Human resources Marketing

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Human Resources CapabilitiesHuman Resources Capabilities

Hiring & retaining workforce

Designing merit pay programs To reward job performance

Designing incentive pay programs For meeting performance standards

Designing pay-for-knowledge programs To reward self-improvement

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Competitive Strategy’sCompetitive Strategy’s Influential Factors Influential Factors

National culture

Organizational culture

Organizational & product life cycles

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National Culture National Culture DimensionsDimensions

Power distance

Individualism/collectivism

Uncertainty avoidance

Masculinity/femininity

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Power DistancePower Distance

Acceptance of company’s power structure

Status differentials

Countries with high distances Venezuela & Philippines

Countries with low distances Australia & Sweden

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Individualism / CollectivismIndividualism / Collectivism

Individualism Personal independence Personal goals Privacy USA

Collectivism Group membership Cohesiveness Japan

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Uncertainty AvoidanceUncertainty Avoidance

High avoidance Fear random events Values stability

Italy & Greece

Low avoidance Values challenges Seeks risks Singapore & Denmark

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Masculinity / FemininityMasculinity / Femininity

Masculinity Favors material possessions Mexico & Germany

Femininity Encourages caring & nurturing Finland & Norway

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Organizational CultureOrganizational Culture

Shared values & beliefs producing behavior norms

Influences compensation practices

Flattening the organization

Team orientation

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Designing Pay-for-Knowledge Designing Pay-for-Knowledge ProgramsPrograms

Establishing Skill Blocks Skill type Number of skills

Transition matters Skills assessment Aligning pay with knowledge structure

Training & certification In-house or outsource training Certification & recertification

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Organizational Life Organizational Life Cycle PhasesCycle Phases

Growth

Maturity

Decline

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Growth PhaseGrowth Phase

New companies

Differentiation strategy

Market-competitive pay systems

Long-term incentive programs

Funding emphasis more on R & D than on compensation

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Maturity PhaseMaturity Phase

Established companies’ products, or services

Well-developed labor pool

Lowest- cost strategies

Pay-for-knowledge programs

Skill-based pay programs

Merit pay programs

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Decline PhaseDecline Phase

Companies with diminishing markets Differentiation Strategy if

Modifying current product / service Developing new product/service

Lowest-cost strategy if Liquidation