What is the Strategic Compensation Management in the Organisations?

 What is the Strategic Compensation Management in the Organizations?

Compensation is an attraction to the organization and long-term work. This topic of management studies attracted me a lot because organizations use different types of strategies to attract employees for better performance and development of the organization.  

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In today’s competitive scenario companies take up special measures to compensate employees. Therefore companies changed the compensation system from traditional to a strategic compensation system.


1.  Introduction

2.  Compensation Strategy

     2.1. Corporate strategy   

     2.2.  Business strategy  

     2.3. Operational strategy 

     2.4. Functional strategy

3.  Ten schools of strategy 

     3.1. Prescriptive school   

     3.2. Descriptive school 

4.  Strategic management  

           4.1. Strategic Analysis 

           4.2. Strategic choice

           4.3. Strategic implement

5.  Compensation design and strategy

     5.1.  Strategy across the level 

     5.2.  Tactics and strategy

6.  Strategic compensation policies

7.  Conclusion


Compensation is an attraction to the organization and long-term work. I have worked with many organizations and changed my job for achieving better compensation. This topic of management studies attracted me a lot because organizations use different types of strategies to attract employees for better performance and development of the organization.   Concept of compensation in an organization

I thought to write on the compensation strategy, management students may use this article as the best notes to clarify the concept of strategic management. Most companies are following traditional compensation systems, but some organizations started thinking about new practices and strategies in the pay system. There are several reasons for changing the compensation system. The pay system was complex the change the employees' understanding.

In today’s competitive scenario companies take up special measures to compensate employees. Therefore companies changed the compensation system from traditional to a strategic compensation system.

Strategic compensation is the implementation to improve and motivate employees to perform better. The term compensation is used as a strategic tool for motivating employees and their market to reach the standard.

Compensation Strategy

Strategy is the systematic plan of action and business strategy is a set of decisions concerning the policies of the organization system. An organization needs to formulate its strategies for facing the needs of the market. This strategy is for the long term and available in the market, the external factors affect the business.

Strategies are needed to use at all levels of operation in the organization. Strategies are present at different levels of the business. Different levels of strategies are:

 Corporate strategy

This is the fundamental level of strategy that is influenced by investors and shareholders in the business. This strategy guides decision-making throughout the business.

Business strategy

This strategy focuses on the business decisions like profit-making, customer satisfaction, advantage, and finding opportunities. 

·        Operation strategy

The strategy focuses on how the business should be operated in the right direction focuses on issues of resources process and so on. 

·        Functional strategy 

The strategy includes developing new products and creating a marketing strategy, technologies, and supply chain management strategies.

Ten schools of the strategy

Ten schools of strategy are classified by Mintzberg, under prescriptive and descriptive school points of view. These schools of thought are directly or indirectly influenced by organizational behavioral studies. These are broadly classified as three prescriptive schools and seven descriptive schools. Compensation Trends in India  

Prescriptive school

These are three strategic prescriptive schools, design, planning, and positioning.

·        Design school

This views the strategy of the process of matching the task, it involves the collection inputs of from the members of the organization.

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·        Planning school

This strategy begins with an objective setting followed by internal and external audit stages. In planning school, strategy formation is a formal and intellectual process.

·        Positioning school

This strategy is an analytical process that involved placing the business within how the organization improves its competitive positioning within the organization. This evolved creativity into a necessity.

Descriptive School

There are seven strategic descriptive schools, entrepreneur, cognition, and learning, power, cultural, environmental, and configuration schools.

·        Entrepreneur school

This strategy is to see the visionary process of the leader of the organization plays the mail role. This strategy is a formative process at the chief executive level.

·        Cognitive school

This school develops the strategy as a mental process, to analyze the pattern of the process. The cognitive school looks into the mind of the strategists. 

·        Learning school

This school views the formative of the strategy as what works and what does not work over the period, therefore the people come to learn about the situation and dealing of the organization.

·        Power school

The power school strategy is in two phases, development of strategy in the organization and negotiation or bargaining the same with the outsiders' stakeholders.

·        Cultural school

This strategy is developed based on the corporate culture of the organization, the strategy is formulated as the process in the social force of culture.

·        Environmental school

This school views the strategy as depending on the event on the environment and organizations’ reaction to them. This school gives a central role to the environment in strategic formation.

·        Configuration school

In this school strategy formation is a process of transforming the organization from one type of decision into another. Most organizations follow and practice this strategy.

Strategic Management

Strategic management is basically for implementing and evaluating the functional decisions of the organization to achieve long-term objectives. Its purpose is to utilize the resources and enhance the organization. This is the process that controls the overall operation of the organization. Compensation Trends in India  

Strategic management is the combination of the three processes. Strategic analysis, strategic choice, and strategic implementation.

Strategic analysis

This part is involved in examining and evaluating the business, it forces many important factors that are involved in many tools:

  • Analysis of Political, economic, social, and technical factors, and the scenario planning the Technic that builds possible the outcome of the business.
  •  Force analysis: that may affect the level of competition, a market segmentation technique that identifies the overall competition.
  • Competitor analysis: identity overall competition of the business, critical success factors and strengthen weakness opportunities and threat factors.

Strategic choice

This process is involved understanding the stakeholder, identifying strategic options, and evaluating the strategic option, selecting the best suitable strategic option.

Strategic implementation

This involved the application of the management process to obtain the desired result. Allocating resources, staffing, developing the information and the decision, managing human resources

Compensation design and strategy

Organizations give importance to employee compensation, and the cost to the organization, compensation is designed with the influence of more than one school, strategic compensation planning helps organizations to focus on their strategic objectives and developed a comprehensive plan, long-term incentives and benefits, and growth opportunities.  Concept of compensation in the organizations

Compensation is designed to ensure that the compensation attracts for good performance and motivates them to do those who support business, which enhances employees' motivation and growth and their effort towards the culture.

The following process helps in developing a strategic compensation plan:

  • Look into the history and background of the organization to understand the principal of the organization.
  • To understand the concept such as cost management and collective bargaining system of the organization.
  • Focus on the performance management structure setting and adjustment of job evaluation, progressiveness, variable pay, special pay, etc.
  • And new strategy design compensation policies.

Designing is the compensation strategy challenge task:

  • Providing higher compensation only to the performer who serves and encourages the non-performer better,
  • Matching the compensation with the market check,
  • Achieving continue motivation to potential workers and terminating non-performers.

Strategy across level

Organizational structure varies from one organization to another, these structure levels are corporate, business, and operational. Strategy at the corporate level is translated into specific action at the middle levels, such as marketing competition strategy, developing the product according to the market requirement, strategy for meeting and satisfying consumer needs, operation level, execution level, which includes investment, quality, and production.

Tactics and Strategy

Some organizations have long-term and short-term strategies, to improve strategy at each level, for example, marketing decisions focus on products, price, and position.

After strategic formulation and implementation of the process of strategy, evaluate the understanding of the requirement of the organization are internal and external consistency, availability of resources, risk, and work-ability.

Strategic compensation policies

For effective compensation, the program organization emphasizes the development of compensation policies. They form the compensation committee to resolve the issues of different pay structures on hierarchical levels, degree, and markets compatibility, and differences in ratio.  Concept of compensation in the organizations

The objective of the compensation committee are:

·       Retaining and attracting the potential of the employees at all levels,

·       Developing the pay level based on the internally fair benefits and externally tough and competitive.

·       Making employees understand the job of the value, and Ensuring flexibility based on individual performance.

·        Ensuring good relations with the employees, and coordination with the board of directors, laws, and regulations.

·       After going through all aspects and adopting the compensation policies.  Which becomes the guideline for the organizational design.

·       These policies emphasize what to pay to their workers and what kind of bonus and incentive is offered.

Some of the compensation strategy statements for the organizations can be listed below:

·        To follow attraction and retention of highly qualified the professional employees

·        To reward employees based on their experience and performance.

·        To achieve and maintain consistency, equity, and fairness, in evaluating and compensating employees with a vision of the organization, and developing the effectiveness of compensation.


Compensation strategy is the most important in HRM functions. Compensation itself is used strategically to replace salaries and wages. The compensation strategy needs strong support from the top level of management. Therefore it’s for the organization and for the leaders to decide which school thought influences them most.

Compensation is designed with the influence of many schools, strategy is the pattern of decisions concerning policies and practices that are associated with the organization.

The organization needs to formulate its strategies in each functional area so that organization can meet the need of the market. Compensation policies should not ignore the organization's business and operation strategy to make it competitive with the business need.


 Related link: 

 Concept of compensation in the organizations

Compensation Trends in India  

 International Compensation Trends







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