Strategic personnel management requires adequate changes as a management subsystem of an organization in the management paradigm. Strategic transformations in the human resource management subsystem are important for the enterprise when forming or improving the personnel remuneration strategy. By definition, a personnel development strategy is not an imitation of the successful experience of other companies. It should be related to the business requirements and goals of each specific organization (Tahir et al., 2019). Its content is the creation and development of organizational programs that reward such types of behavior and competence levels that motivate employees to achieve the enterprise’s strategic goals.
Goals of the strategy
The compensation strategy should be based on the organization’s core values, responsive to the needs of the organization and the needs of all its employees (Tahir et al., 2019). Achieve the flexibility necessary to manage the remuneration process within a dynamic organization operating in a competitive and volatile environment.
The remuneration strategy is based on strategic motivation, which is the process of forming methods and means of influencing the behavior of employees in order to direct it towards achieving the strategic goals and guidelines of the organization (Jean et al., 2017). Signs of strategic motivation is a clearly defined relationship of future remuneration with the employee’s individual, team, and collective contribution to the implementation of the organization’s development strategy.
Development Impact of the Compensation System
A compensation strategy is the organization’s intention to develop processes and compensation policies to meet the business’s needs (shareholders). The compensation strategy is developed as part of the overall human resource management strategy and is subordinated to implementing the organization’s strategy. In aligning the compensation strategy with the organization’s strategy, wages will be targeted towards the employees who contribute more to the implementation of the system. In this way, compensation affects the behavior and performance of workers through their results or skills, which increase their level of recognition and increase the level of wages.
The compensation strategy should provide a good mix of direct and indirect compensation, financial and non-financial forms. For example, when restructuring an organization, a compensation strategy involves developing a compensation structure that is appropriate and supportive of an organization with fewer hierarchical levels. As well as the introduction of payment methods that support and reward effective teamwork. The M&A strategy is to cut staff, but turnover from self-initiated layoffs can be a significant problem. In this case, the compensation strategy can be based on providing or expanding career opportunities for the best employees, the organization of training programs, and the exchange of experience between different structural units.
Compensation strategy for global corporations
The problem with a strategic approach to reward is that it promises more than it does. The best companies can hope for when using their system for compensation is that it will not distort the relationship between managers and employees. Thus, reward management is a job of limiting harm, not a strategic lever for organizational transformation that has been so seductively written about in many research papers.
In addition, rationalism is limited here and pointed out that, as a rule, payment systems are chosen for their legitimacy and not because of purely economic reasons. However, it cannot be denied that having a sense of purpose and direction is a wonderful thing and that for all the shortcomings of a strategic approach to reward, it justifies it. As for the group reward system, they undoubtedly have undeniable advantages.
However, these tools have one significant drawback. Stimulating group achievement often fails to account for the difference between individual contributions, resulting in rewards for underperforming workforce units and a decline in motivation: why bother when weaker members are rewarded as well? In this case, the individual achievement reward program comes to the rescue. Discretionary advantages include the ability of the subject of power to act at its discretion, choosing any legitimate course of action. That is, these are payments made by the company that is not provided for by law.
Google’s compensation strategy
When it comes to employee motivation, there is no doubt that Google stands out from the crowd. In 2014, Google was named Best Company to Work for by the Great Place to Work Institute and Fortune Magazine (Noyan, 2021). The organization topped this list for the fifth time. Like other companies, Google provides classic fringe benefits like flexible billing, free medical and dental care, insurance, retirement benefits, paid vacations, and tuition reimbursements.
At the same time, the company provides a number of discretionary benefits that would increase employee productivity and their willingness to work for the company. The father and mother of the newborn are compensated up to $ 500 for ordering food in the first three months that they spend at home with the baby. In addition, a variety of delicious and healthy meals are available to employees every day, prepared by experienced chefs.
Influence of the law on compensatory strategy
As mentioned earlier, modern companies are trying to be more and more attractive not only for clients and partners but also for working personnel. As we have found out, the compensation strategy, which includes all kinds of discretionary advantages, is, if not the most important in the matter of employee incentives, then at least the most common. The various benefits and compensations provided to employees represent a significant part of the costs of firms. In developing a compensation strategy, an organization should be aware of the limiting factors, both internal and primarily external. External factors that can affect compensation within the company include especially laws, trade unions, and market factors. Depending on the country, different labor and wage laws apply. Businesses and their managers are required to adhere to these rules strictly.
The FLSA of 1938 established minimum wages, overtime rules, and the work of minors. All these factors have an impact on the establishment of compensation in a business organization. The company must treat all employees in the same way, be aware of the laws and internal factors that affect the distribution of income in the company so that this does not lead to the fact that the company pays more than it can afford.
Trade unions and compensatory strategy
The next factor influencing the design and implementation of compensation strategies is the trade unions operating in many countries. Trade unions can intervene in the life of the company, regardless of the employee’s status, and sometimes demand higher or lower wages, which directly impacts the compensation system. There are many studies showing the direct impact of trade unions on business organizations. Collective bargaining between a firm and its unions affects the corporation’s tariff policy. Along with manipulating real financial flexibility that can threaten the firm’s viability, CEO compensation improves their relationship with unions (Huang et al., 2017). In this sense, executive compensation is used to stimulate executives and build goodwill among clients or signal solid prospects to less informed parties.
Market factors affecting compensation strategy
The labor market is one of the most important conditions of the market mechanism. Also, the labor market increases staff mobility and encourages the spread of various forms of employment. The amount of compensation for labor can change in a competitive market following the laws of supply and demand. When demand exceeds supply in the labor market, a particular type of labor price rises above the equilibrium point. Now, under the influence of the scientific and technological revolution, the demand for highly qualified labor is not fully satisfied. On the other hand, the demand for unskilled labor in most cases falls, which negatively affects the earnings of people with no secondary education.
A compensation strategy is a strategy, policy, and process that recognizes and rewards employees for their contribution to achieving the goals of an organization, department, and workgroup. The personnel reward system created in the organization has a complex effect on the labor behavior of employees and depends on many factors, external and internal. A compensation system aims to meet the needs of both the organization and all interested parties while ensuring fairness, equity, and consistency.
Huang, Q., Jiang, F., Lie, E., & Que, T. (2017). The effect of labor unions on CEO compensation. Journal of Financial and Quantitative Analysis, 52(2), 553–582. Web.
Jean, K. N., Ngui, T. K., & Rober, A. (2017). Effect of compensation strategies on employee performance: A case study of Mombasa Cement Limited. International Journal of Innovative Social Sciences & Humanities Research, 5(3), 25–42.
Noyan, B. (2021). Google. Fortune. Web.
Tahir, R., Rosita, T., Amiruddin, D., & Prayitno, A. (2019). Employee competencies and compensation strategies as company’s strategic effort to escalate employee performance. International Journal of Recent Technology and Engineering, 8(3). Web.
Thorness, K. (2020). PREVIEW; Childress v. Costco Wholesale Corp.: Parasitic emotional distress – Will Montana courts soon be flooded by litigation over hurt feelings? Montana Law Review, 81(4).