Tailoring the Compensation System to the Strategy
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If the basic premise of a strategic perspective is to align the compensation system to the business strategy, then different business strategies will translate into different compensation approaches. Figure 1 gives an example of how compensation systems might be tailored to three different business strategies. The innovator stresses new products and short response time to market trends. A supporting compensation approach places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovations. The cost cutter’sefficiency-focused strategy stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed. The customer-focusedbusiness strategy stresses delighting customers and bases employee pay on how well they do this. Different business strategies require different compensation approaches. One size does not fit all.
Reference: Milkovich−Newman. Compensation. (2004).
