The document discusses the importance of strategic compensation in human resources, emphasizing how it aligns with business strategy to enhance talent attraction and retention. It highlights the need for organizations to balance employee and employer expectations while designing compensation frameworks, considering both internal and external determinants. The author, Rajesh Balasubramanian, provides insights on evolving compensation management from a traditional focus to a strategic approach that supports overall HR and business objectives.

1. strategic
compensation
Rajesh Balasubramanian
Senior consultant- HRC,
Ma Foi Consulting Solutions Ltd.

2. what and where
to focus?
Compensation is one of the key construct in HR strategy – The business strategy/model acts as a vital input for the
be it talent attraction or retention. It is an undeniable fact strategy planning of compensation, helping the
that, compensation decisions have huge impact on the organization to decide as to how the compensation model
employee management issues for all organizations. is to be structured. Various business models require various
Nevertheless, often organizations tend to experience compensation models supporting the same.
increased employee outgoes immediately after
performance appraisal and increments results. In Indian The internal and external determinants of compensation
context, this situation is very highly visible since India is strategy are the key elements for developing strategic
one of the countries with high workforce mobility compensation program. Intensive and careful analysis of
these elements are to be carried out, ensuring a balance in
How do HR managers tackle such a burning issue? The the overall program design would be the success factor of
answer is by being strategic. From being a mere any strategic compensation program
compensation administration function, HR had
transformed compensation management as a strategic The organization structure and levels are to be necessarily
lever in bolstering business strategy in the recent years, kept in mind while designing the compensation
ensuring compensation is well placed in the HR strategy components, which forms part of the strategic elements of
agenda. compensation design. The key success factor in any
strategic compensation design is balancing “employee and
Strategic compensation aims at alleviating disconnects employer expectations”.
between business strategy and how HR supports business
strategy. This dimension of HR strategy emphasizes on how The strategic compensation design model is elaborated
compensation needs to be viewed as a strategic element to below:
build & support HR strategy. Shifting the focus from what
organization thinks should be the compensation to Balanced pay mix
developing appropriate compensation through internal ?benefits
cash &
? systems
rewards
and external determinants have led to view compensation
in a strategic perspective Internal equity
? roles
? skills
Strategic compensation looks beyond traditional aspect of external
compensation such as total pay (how it is arrived), dimensions
employment cost etc. The critical elements in strategic
compensation are
Understanding business strategy/model
?
? determinants of compensation
Internal
? determinants of compensation
External
A generic broad based characteristic of strategic internal
compensation program is depicted below: dimensions Talent Availability
? & Supply of talent
Demand
Industry trends
? pay ranges
Industry
? growth propsects
overall
global scenario
?
business model The compensation philosophy developed based in the
organization philosophy, market orientation and business
innovation values & culture. The compensation philosophy thus
cost leadership defined would entail market positioning strategy, which
customer service
will be in concurrence with external and internal factors
portrayed above.
Developing the pay mix requires careful planning,
internal determinants
external determinants considering the manner in which the cash components,
equity benefits and perquisites are factored for various levels of
Industry trends employee categories. The reward and recognition
talent availability pay mix
cost administration 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.
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 rajesh.bn@mafoirandstad.com