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Q2. Expert argues that companies need to focus on strategy formulation, implementation, competition and the like and not waste their time and energy on matters relating to wage and salaries. Give your view point. (15) Ans) Compensation policies, implementation and feedback are part of organizational strategies. Company has to address matters relating to wage and salaries to attain organizational goals. The development of a total compensation strategy creates and influences a collective culture, offers Corporation and company-wide shared rules and directives, advances the implementation of the business strategy and promotes performance and results orientation. A total compensation strategy should take into account the following elements and orientation points: Fixing a value-based company management. Coupling with the long-term appreciation of the companys value . Market orientation for engaging qualified executives and specialists. Cost consciousness during conception and implementation. Taking local conditions into account.

Strategy and

Value Management

Commitment and Flexibility

Motivation and Performance

Reinforcing the Bridge between Business Strategy and Compensation Strategy

Today's compensation approaches, like the rest of the business world, are changing rapidly. As a result, the bridge that connects compensation strategy to the overall business strategy may have been weakened by the frequent shifts that characterize business today. Consider the following scenario: Seeing its competitors and peer companies implementing skill-based pay, one company decided to implement a similar system in its own operations-without giving sufficient thought to how the change will help or hinder the company's ability to execute its business strategy. Or consider the opposite scenario: A company reformulates its business strategy without making the necessary changes to its compensation systems. Situations like these are not unique. The pace of change in both business strategy and compensation design are leading many companies to consider and implement changes to one side of the bridge without making changes to align it with the other side of the bridge. As a result, the bridge becomes weaker and is more likely to undermine the overall success of the business. Companies can periodically examine the alignment of the bridge between business strategy and compensation strategy and then make the necessary changes to address any weaknesses in that alignment. This process encompasses the following key steps:

Articulating the company's long- and short-term business strategies and making sure they are aligned with current compensation approaches. Choosing the compensation approach that will best reward and reinforce the company's articulated strategic goals. Periodically evaluating the compensation approach against the business strategy to see if goals have been met and make necessary adjustments.

Articulate the business strategy

To align compensation with the business strategy, a company must first be able to articulate what that business strategy is. After all, in the continuum of the strategic planning process, compensation systems design comes at the end.

The Strategic Planning Process

Step 1. Using the results to a situation analysis (which identifies the strengths and weaknesses of the company's business processes, organizational behavior, and other systems), as well as the company's mission and philosophy statements, develop a corporate strategy.

Step 2. Using an approach similar to that in Step 1, begin to operationalize the corporate strategy by developing a business strategy plan for business units and departments. Step 3. Establish job accountabilities and individual assignments so that each employee knows what to do to support the strategy. Step 4. Develop supporting reward systems. Step 5. Monitor and measure progress against the articulated strategy and goals. To accomplish this, the company's human resources and compensation professionals needed certain critical information:

Could the company re-educate the affected employees in time to have the desired results within the immediate and intermediate time frames? How many new people needed to be hired? What are the desired background and experience required to do the job? Were the new roles clearly defined and articulated to the employees and the customers? How many of the new roles required team work versus individual contribution? How will the company know when it is attaining its goals? And will cash be the only or the primary means of recognizing the attainment of individual and company goals? Without answers to these questions, the company's HR and compensation professionals would be unable to develop the people systems, particularly compensation systems that would support the achievement of the company's strategic goals.

Choose the right compensation approach

Once compensation professionals have a strong grasp of the business strategy and its associated goals and objectives, the next step in this process is to design reward systems that will support and reinforce that strategy, goals, and objectives. This is where companies seem to be swayed away from choosing the most appropriate compensation approach in favor of the most popular or trendy compensation approach. Does it make sense to change the compensation system to a broad banded approach, to use team incentives, or to link financial goals to external measures? Each one of these plan design features have a great following in the business press, but do they make sense for the individual company? Choosing the right compensation approach is a matter of determining what a given employee or group of employees can control and what impact their performance has on overall company success. By determining what an individual or group can control, the compensation professional have a list of potential goals and objectives to be rewarded. And by determining what impact an individual or group has on company performance, the level of reward can be established. In one financial product company, management shifted its strategic focus from growing primarily by adding new customers to a strategy focused on product penetration of existing clients and

geographic areas. This shift required a change from cold selling to improved account management and product enhancement. This, in turn, required the management and marketing staff to listen more closely and respond more carefully to their existing customer bases. The company did not neglect the cold call selling but now balanced it with this new overall strategy. As a result of this shift, recruiting emphasized customer servicing skills and the organization emphasized team work and coordination. There was also a shift in pay practices from rewarding only new dollar sales to a balance of rewards for retention sales, account management, service quality, and new sales both inside and outside of the current customer base. The process of aligning business and compensation strategy also requires determining what level of pay should be at risk.

Periodically review the linkage

By periodically reviewing the linkage between the business strategy and the compensation approach, companies can ensure that the two are still in alignment. This also allows companies to judge the effectiveness of the compensation approach. In other words, if the company is closer to its strategic objectives than it was at the beginning of the strategic planning process, the strategy and compensation approaches are most likely aligned and working synergistically. On the other hand, if it has not seen expected results or moved forward as quickly as expected, the company should undertake more analysis and a more thorough strategic planning process.

Compensation remains an important tool for helping a company achieve its strategic objectives. However, companies must recognize that compensation does not operate in a vacuum. It is merely one step in a very dynamic strategic planning and implementation process. But by ensuring that compensation is aligned with their strategic objectives, companies stand a better chance of achieving those objectives and maintaining a competitive edge over their competitors.