All organizations that have a payroll also have a compensation strategy. The strategy may have developed informally from the pay decisions made, or have been inferred based on the organization’s compensation practices over time.

The best practice type of strategy assumes that there is a best practice for compensating employees that will garner better employee performance in any business or organization setting.

In the best fit compensation strategy, which is more widely accepted and used, four steps are used to develop a planned total compensation strategy. The first three steps are to assess the total compensation implications, fit the policy decisions to the strategy, and then implement the strategy. The last step is to reassess and realign the strategy as internal and external conditions require a change or adjustment.

Traditional compensation methodology is restrictive, creating boundaries to limit income, schedule, hours, accountability, and potential while focusing on individual performance. The strategic compensation model takes a very different approach that emphasizes organizational performance. It provides the employees of the organization with a stake in the profitability of the enterprise by rewarding commitment, dedication, performance, achievement, innovation and personal growth. Strategic compensation requires an alignment or fit of the organization’s system of compensation with the strategic goals of the organization. The major goal of a compensation system should be to attract, motivate and retain excellent employees and, in the process, to improve the performance of the organization.

As head of Human Resources of a major company, your organization is moving into international operations. Describe how you will approach the issue of strategic compensation in an international setting. What are three important issues you need to address here?