What steps can a company take to integrate its compensation system with its general business strategy?

In order to integrate its compensation system with its general business strategy, firms must (a) make the pay system an integral part of the strategy formulation, they must (b) integrate pay considerations into strategic decision-making process, and (c) view the firms performance as the ultimate criterion of the success of the merger. What can companies do to ensure internal, external, and individual equity for all employees? No company can ensure that "all" employees will feel their pay is equitable. However, by conscientiously engaging in the steps of job evaluation, pay surveys, and paying within grade based on performance, the company will have a pay system that generally approximates the goals of internal, external, and individual equity. It is also important that information about the pay system and how it operates be communicated clearly and openly to employees. For example, part of the "trust gap" problem discussed in the chapter opening vignette may be attributable to the fact that lower-level employers don't understand the rationale upon which CEO pay is based. Discuss the advantages and disadvantages of competency or skill-based pay systems. Typical pay plans are based on paying for the job, not for the person. This creates a stable, understandable, fair pay system. However, businesses are finding that their competitive environments require more rapid change in products, more teamwork, and more "horizontal" process-oriented operations. These requirements are generally better met when employees work in teams and have the flexibility to do a variety of jobs as market conditions change. Under these circumstances, businesses may want to use skillbased systems, which provide an incentive to acquire new skills and knowledge. However, both skill- and competency-based plans become increasingly expensive as the majority of employees become certified at the highest pay levels, which can place the employer at a disadvantage if competitors have lower labor costs.

What cautions would you advise in interpreting data from pay surveys? Managers should be aware of two potential problems with pay survey data. The most serious is the assurance of an accurate job match. The second is the explosion of at-risk forms of pay, which makes it difficult to determine the actual pay of job incumbents. How has strategic thinking affected executive incentives? Companies with a history of outperforming their rivals, regardless of industry or economic climate, have two common characteristics: (a) a long-term, strategic view of their executives, and (b) stability in their executive groups. As a rule, these companies have developed executive compensation plans that reward the achievement of long-term strategic goals. This has often resulted in huge bonuses to top executives, which attracts the best and brightest CEOs. However, these rewards have not been looked on favorably by company employees and stockholders, who see CEOs getting richer and richer while stock prices are stagnant and workers get laid off. This will most likely cause boards to re-evaluate the strategic value of such programs. Distinguish profit sharing from gain sharing. Gain sharing differs from profit sharing in three important ways: (a) Gain sharing is based on a measure of productivity; profit sharing is based on a global profitability measure. (b) Gain sharing is a frequent event; profit-sharing is an annual event. (c) Gain-sharing plans are current distribution plans; most profit-sharing plans have deferred payments. If you were implementing an employee stock ownership plan, what key factors would you consider? ESOPs have been most successful when established for employee-centered reasons (as a benefit, to support a philosophy of employee ownership, etc.) versus strategic or financial reasons (e.g., tax advantages). Other key success factors are: a) large annual company contributions to the plan, b) management commitment to employee ownership, and c) extensive company communication about the ESOP.