Unit 2 Adapted from Nelson 1

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Unit 2 Adapted from Nelson 1. Understand the concept of “fit” and explain why the same compensation system that is a success in one firm can be a failure in another. 2. Explain how the strategic framework for compensation can be used as a tool for designing effective reward and compensation systems. 3. Describe the main elements in the strategic compensation framework, and explain how they relate to one another. 2 Copyright (c) 2010 by Nelson Education Ltd 4. Describe the main managerial strategies that organizations can adopt, and explain the implications for the most effective reward and compensation system. 5. Describe the main determinants of managerial strategy, and explain how they can be used to select the most appropriate managerial strategy. 6. Analyze any organization to determine the most appropriate managerial strategy for that organization to adopt. 7. Discuss how conditions in North America changed during the twentieth century, and explain how this has affected compensation strategies and systems 3 Copyright (c) 2010 by Nelson Education Ltd 4 Copyright (c) 2010 by Nelson Education Ltd ? ? ? Competitive pay Profit sharing Excellent benefits 5 Copyright (c) 2010 by Nelson Education Ltd ? ? ? Chicken processing Minimum wage No fringe benefits 6 Copyright (c) 2010 by Nelson Education Ltd ? ? ? ? An organization’s mission, vision and values guide managerial and compensation strategies. Fit refers to the alignment between the firm’s overall strategy and strategies at other levels Vertical fit is the alignment between the overall strategic thrust and the supporting strategies, including HR and compensation Horizontal fit refers to the integration or alignment at the same level; for example, between HRM and marketing. 7 Copyright (c) 2010 by Nelson Education Ltd contingency approach to organization design and strategy • an approach to organization design based on the premise that the best type of structure for an organization depends on the key contingencies (contextual variables) associated with that organization • Contingency theory based on similar reasoning 8 Copyright (c) 2010 by Nelson Education Ltd ? ? Mission, Vision, Values ? SWOT ? Strategy Unit/Functional Strategies ? Compensation Strategy ? ? Copyright (c) 2010 by Nelson Education Ltd Attitudes Employee Behaviours 9 10 Copyright (c) 2010 by Nelson Education Ltd Which of the following is not part of the strategic framework for compensation? a. Resource providers b. Structural variables c. Contextual variables d. Managerial strategy ? 11 Copyright (c) 2010 by Nelson Education Ltd ? ? ? ? ? Structural variables can be together in numerous ways to determine managerial strategy Three main types: - classical - human relations - high involvement 12 Copyright (c) 2010 by Nelson Education Ltd Structural Variable Classical Managerial Strategy Human Relations Managerial Strategy HighInvolvement Managerial Strategy Job Design Thinking separate from doing; narrow, fragmented jobs Similar to classical, but job design may allow more social contact Joint planning and goal setting; broader, more meaningful jobs Coordination and Departmentation Strict, formalized pyramidal hierarchy emphasizing accountability; vertical coordination (by superiors); departmentation by function Similar to classical; possibly use of some work teams Horizontal coordination (by employees) in addition to vertical coordination; use of work teams; departmentation by product, customer, project, or matrix 13 Copyright (c) 2010 by Nelson Education Ltd Structural Variable Classical Managerial Strategy Human Relations Managerial Strategy HighInvolvement Managerial Strategy Control External—through supervision, rules, punishments, and some extrinsic rewards External—through use of social or peer pressure, rules, some extrinsic rewards Internal—through intrinsic rewards from the work itself, self-control through internalized commitment Communication Formal and vertical; restricted Use of formal and informal (grapevine) communication; some restriction High amount of vertical and horizontal communication; less formal; climate of open communication 14 Copyright (c) 2010 by Nelson Education Ltd Structural Variable Classical Managerial Strategy Human Relations Managerial Strategy High-Involvement Managerial Strategy Decision Making and Leadership Autocratic decision making; taskoriented; controlling supervisory role Autocratic decision making with minor consultation; employee-oriented; controlling supervisory role Participative or democratic decision style; both task- and employee-oriented; facilitator supervisory role Reward Systems Extrinsic economic rewards related to individual output (e.g., piece rates, commissions) or to time worked (e.g., hourly pay) Extrinsic economic rewards, unrelated to performance; liberal fringe benefits (indirect pay) and loyalty rewards; social rewards Intrinsic rewards from job itself; pay for knowledge; extrinsic rewards focusing on group/organization performance (e.g., gain sharing, profit sharing, stock ownership) 15 Copyright (c) 2010 by Nelson Education Ltd core values guiding beliefs understandings Organizational Culture 16 Copyright (c) 2010 by Nelson Education Ltd environment nature of the work force corporate strategy contextual variables size of the organization technology 17 Copyright (c) 2010 by Nelson Education Ltd stable simple unstable complex 18 Copyright (c) 2010 by Nelson Education Ltd ? ? Miles and Snow Typology of Corporate Strategy Porter’s Typology of Corporate Strategy 19 Copyright (c) 2010 by Nelson Education Ltd Defender Prospector •dominating a narrow product or service market segment •identifying and exploiting new opportunities quickly Analyzer Reactor •exploiting new opportunities at a relatively early stage while maintaining a base of traditional products or services •firms that do not practice any distinct overall strategy 20 Copyright (c) 2010 by Nelson Education Ltd low-cost focused low-cost •depends on providing low cost products or services to a broad range of customers •depends on providing low-cost products or services to a narrow range of customers Differentiator focused differentiator •depends on providing unique products or services to a broad range of customers •depends on providing unique products or services to a narrow range of customers 21 Copyright (c) 2010 by Nelson Education Ltd ? ? ? ? Technology can be classified based on: The type of production processes used The degree to which the technology is routine or non-routine Whether small or large batchs are used 22 Copyright (c) 2010 by Nelson Education Ltd 23 Copyright (c) 2010 by Nelson Education Ltd Which of the following leadership styles is appropriate for companies pursuing a classical managerial strategy? a. The leader is controlling and employeeoriented b. The leader is controlling and task-oriented c. The leader gives free rein to employees d. The leader is facilitating and both employee- and task-oriented ? 24 Copyright (c) 2010 by Nelson Education Ltd ? • • The Evolution of Managerial Strategies Evolution of management theory: scientific management/classical, human relations, high involvement The Hawthorne experiments 25 Copyright (c) 2010 by Nelson Education Ltd • Changes in society, the economy (e.g., manufacturing vs service), demographics, etc. have induced change 26 Copyright (c) 2010 by Nelson Education Ltd • • Pressures from globalization Rapid evolution in some instances; not much in other cases 27 Copyright (c) 2010 by Nelson Education Ltd ? - ? - ? “Traditional” Systems High base pay, low variable “New” Pay Systems Competitive base pay Some merit, individual incentives More emphasis on group and organizational level pay-for-performance systems Pay systems vary by employee category: executive versus lower level employee 28 Copyright (c) 2010 by Nelson Education Ltd ? Canadian HR Reporter http://www.hrreporter.com ? WorldatWork ? http://www.worldatwork.org 29 Copyright (c) 2010 by Nelson Education Ltd 1. 2. 3. “If a compensation system works well for one business, that same compensation system should also work well for other businesses.” Discuss whether this statement is true. Discuss why it is important to understand which managerial strategy a firm is practicing before designing a compensation system for that firm. Discuss recent trends in compensation practices taking place in North America and explain what may be causing those trends. 30 Copyright (c) 2010 by Nelson Education Ltd ? ? ? ? ? ? Take an organization that you know well, such as a current or former employer, and apply the template in Compensation Notebook 2.2 to determine the most appropriate managerial strategy for that firm. Does this match the managerial strategy actually in use? If not, why not? Do you agree with what the template indicates as the best managerial strategy? Would you consider this firm to be an effective organization? Does the organization’s reward system match its managerial strategy? 31 Copyright (c) 2010 by Nelson Education Ltd