Compensation Strategy

Sometimes different business units within the same corporation will have very different competitive conditions, adopt different business strategies, and thus fit different compensation strategies. The point is that a strategic perspective on compensation is more complex than it first appears. Strategy refers to the fundamental directions that an organization chooses. An organization defines its strategy through the tradeoffs it makes in choosing what (and what not) to do. At the corporate level, the fundamental strategic choice is: What business should we be in? At the business unit level, the choice shifts to: How do we gain and sustain competitive advantage in this business? At the function level the strategic choice is: How should total compensation help this business gain and sustain competitive advantage? The ultimate purpose—the “so what?”—is to gain and sustain competitive advantage.