Aligning Compensation Strategy with Business Strategy & HR Strategy and Seniority & Longevity Pay

By Dr. G C Mohanta, BE, MSc (Engg.), MBA, PhD (Mgt.), Professor, Al-Qurmoshi Institute of Business Management, Hyderabad, India

The Compensation Strategy of an organisation should be aligned with Business Strategy and HR Strategy.

Aligning Compensation Strategy with Business Strategy

In the first column of the following table, the Business Strategy of a typical company has been mentioned. The Compensation Strategy mentioned in the second column should be aligned with the Business Strategy of the company.

Business Strategy Compensation Strategy– Achieving competitive advantage through innovation – Achieving competitive advantage through quality – Achieving competitive advantage through low costs

– P- Provide financial incentive/reward and recognition for innovation– Link reward to quality performance

– - Review all reward practices to ensure

they provide value for money

Aligning Compensation Strategy with HR Strategy

In the first column of the following table, the HR Strategy of a typical company has been mentioned. The Compensation Strategy mentioned in the second column should be aligned with the HR Strategy of the company.

HR Strategy Compensation Strategy

➢ Attracting staff - The reward package on offer must be sufficiently attractive from that of its labour market competitors. ➢ Retaining staff- Retaining effective performers should be the central aim of a reward strategy. ➢ Driving change- Pay can be used specifically as one of the tools supporting change management process. ➢ Corporate reputation- Establish a positive corporate reputation. ➢ Affordability- How limited resources should be deployed in order to maximise the positive impact of reward management.

– Total reward approaches that help to make the organisation a great place to work – Competitive pay structure that helps to retain high quality employee – Variable pay schemes that contributes to the motivation of the people – Performance management process that promotes continuous improvement – Performance management processes that identify learning needs and how they can be satisfied – Career family structure that defines knowledge and skills requirement

➢ Purchasing Power- The absolute level of weekly or monthly earnings determines the standard of living of the recipient, and will therefore be the most important consideration for most employees.➢ Composition- How is the package made up? The growing complexity and sophistication of payment arrangements raise all sorts of questions about pay composition.

– Total reward approaches that emphasize the importance of enhancing the work environment

Seniority & Longevity Pay

Salary or wages based on seniority or length of service with an organization. The greater the length of service, the greater the longevity pay. It may also be used as a bonus for remaining on a job beyond a certain period.

These systems reward employees with periodic additions to base pay according to employees’ length of service in performing their jobs.

Design of Seniority Pay and Longevity Pay Plans

Seniority Pay Longevity Pay

To reward job tenure or employees’ time as members of a company explicitly through permanent increases to base pay.

To reward employees who have reached pay grade maximum and who are not likely to move into higher grades.

Advantages of Seniority Pay

To Employees To Employers

Perceive they are treated fairly because they earn pay increases according to seniority, which is an objective standard.

It facilitates the administration of pay programs. Employers are less likely to offend employees by showing favouritism to others.