solution manual for Compensation 5th Canadian Edition by George Milkovich
CHAPTER 2
STRATEGIC PERSPECTIVES
LEARNING OUTCOMES
After studying Chapter 2 students should be able to:
Explain why managers should tailor their pay systems to support the
organization’s strategy. Identify the four steps to develop a total compensation
strategy.
Describe the three tests used to determine whether a pay strategy is a source of
competitive advantage.
Contrast the “best fit” perspective on compensation with the “best practices”
perspective.
CHAPTER SUMMARY
1. The four steps to develop a total compensation strategy are: (1) assess total
compensation implications, including business strategy and competitive dynamics,
HR strategy, culture/values, social and political context, employee/union preferences
and fit with other HR systems; (2) map out a total compensation strategy;(3)
implement the strategy; and finally, (4) assess and realign the strategy to ensure
achievement of the objectives.
2. To improve organizational effectiveness, managers should align the compensation
strategy to the organization’s strategy.
3. The three tests used to determine whether a pay strategy is a source of competitive
advantage are (1) Does it align? (2) Does it differentiate? And (3) Does it add value?
4. The “best fit” perspective on compensation suggests that compensation be aligned, or
fit. With the specific business strategy adopted by the organization. given its
environment, in order to maximize competitive advantage. The “best practices”
perspective suggests there is one set of best pay practices that can be applied
universally across situations and strategies, attracting superior employees who then
create a winning strategy.
LECTURE OUTLINE
SIMILARITIES AND DIFFERENCES IN STRATEGIES
Sometimes different business units within the same corporation will have very different
competitive conditions, adopt different business strategies, and thus use different
compensation strategies. As seen in Exhibit 2.1 the compensation strategies for Google,
Medtronic, and Merrill Lynch are compared and contrasted to demonstrate inter-company
differences along the dimensions of objectives, internal alignment, external
competitiveness, employee contributions, and management. In addition to inter-company
Milkovich et al. Compensation Fifth Canadian Edition |
differences, compensation strategies are also diverse within the same industry as can be
seen with Google, Microsoft, and SAS. Theycollectively compete from the same pool of
candidates so it is important for each company to differentiate itself from its competitors.
Finally, compensation strategies can vary within the same company pending the types of
jobs and their linkage to industry compensation norms.A strategic perspective on
compensation is more complex than it first appears. Taking a strategic perspective
requires a focus on compensation decisions that help the organization gain and sustain
competitive advantage.