The aim of Part One is to understand how compensation strategy decisions interact with the specific context of an organization (its business and human resource strategies) to influence organization success. The authors emphasize that good theory and research are fundamental to not only understanding compensations likely effects, but also to developing that healthy skepticism needed toward simplistic claims about what works and what does not. The key premise is that the way employees are compensated can be a source of sustainable competitive advantage. The three tests to identify if a pay strategy provides competitive advantage are discussed. The steps involved in developing a total compensation strategy are described: (1) assessing conditions; (2) deciding on the best strategic choices using the pay model (objectives, alignment, competitiveness, contributions, and management); (3) implementing the strategy through the design of the pay system; and (4) reassessing the fit. Two alternative approaches to developing a compensation strategy are highlighted: (1) best-fit and (2) best-practices approach. The best-fit approach presumes that one size does not fit all. Managing compensation strategically means fitting the compensation system to the business and environmental conditions. In contrast, the best-practices approach assumes a universal best way exists. The focus is not on what the best compensation strategy is but on how to best implement the system and ultimately fit the compensation system to the business and environmental conditions.

Instructions

This assignment requires you to examine the purpose of the pay model and strategy and how those components influence organizational success. Describe the purpose and the function of the model and the strengths and weaknesses.