Strategic Compensation April2010


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Strategy, compensation, rewards

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Strategic Compensation April2010

  1. 1. Strategic Compensation Rajesh Balasubramanian, Senior consultant- HRC, Chennai 4/29/2010
  2. 2. ©Ma Foi Consulting Solutions Limited 2010 Strategic compensation – what and where to focus? Compensation is one of the key construct in HR strategy – be it talent attraction or retention. It is an undeniable fact that, compensation decisions have huge impact on the employee management issues for all organizations. Nevertheless, often organizations tend to experience increased employee outgoes immediately after performance appraisal and increments results. In Indian context, this sit situation is very highly visible since India is one of the countries with high workforce mobility How do HR managers tackle such a burning issue? The answer is by being strategic. From being a mere compensation administration function, HR had transformed compensation management as a strategic ensation ensation lever in bolstering business strategy in the recent years, ensuring compensation is well placed in the HR p strategy agenda. Strategic compensation aims at alleviating disconnects between business strategy and how HR supports business strategy. This dimension of HR strategy emphasizes on how compensation needs to be viewed gy. as a strategic element to build & support HR strategy. Shifting the focus from what organization thinks should be the compensation to developing appropriate compensation through internal and external through determinants have led to view compensation in a strategic perspective Strategic compensation looks beyond traditional aspect of compensation such as total pay (how it is arrived), employment cost etc. The critical elements in s strategic compensation are - Understanding business strategy strategy/model - Internal determinants of compensation - External determinants of compensation A generic broad based characteristic of strategic compensation program is depicted below business model - innovation - cost leadership - customer service internal external determinants determinants - equity - Industry trends - pay mix - talent availability - cost administration
  3. 3. ©Ma Foi Consulting Solutions Limited 2010 The business strategy/model acts as a vital input for the strategy planning of compensation, helping the y/model organization to decide as to how the compensation model is to be structured. Various business models require various compensation models supporting the same. The internal and external determinants of compensation strategy are the key elements for developing strategic compensation program. Intensive and careful analysis of these elements are to be carried out, ensuring a balance in the overall program design would be the success factor of any strategic success compensation program The organization structure and levels are to be necessarily kept in mind while designing the compensation components, which forms part of the strategic elements of compensation design. The key success factor in any strategic compensation design is balancing “employee and employer tegic “employee expectations”. The strategic compensation design model is elaborated below Balanced pay mix - cash & benefits Internal - rewards systems dimensions Internal equity - roles - skills Talent Availability - Demand & Supply of talent Industry trends - Industry pay ranges External - overall growth propsects dimensions - global scenario The compensation philosophy developed based in the organization philosophy, market orientation and business values & culture. The compensation philosophy thus defined would entail market positioning strategy, which will be in concurrence with external and internal factors portrayed above. Developing the pay mix requires careful planning, considering the manner in which the cash components, benefits and perquisites are factored for various levels of employee categories. The reward and recognition measures (compensation components) need to be aligned with the overall HR strategy. And it goes without saying; the compensation strategy should be reiterating the cultural determinants of the organization. Strategic compensation focuses on total rewards strategy with employee and employer expectations in mind and hence it is different from traditional remuneration perspective. tional The author, Rajesh Balasubramanian is a senior consultant with Ma Foi Consulting Solutions Limited, (MCSL) Chennai. MCSL is the premium HR consulting solutions provider of Ma Foi Randstad India. Rajesh has over 12 years experience in the HR domain spanning HR systems and compensation consulting for companies in India & Middle east. He can be reached at Middle-