Compensation as a Source of Competitive Advantage

The competitive advantage is an important component of the modern companies and businesses. The competitive advantage has to be present in the management of Human Resources, services, commodities, external and internal processes. The workers are the company’s assets, and the competitive advantage in the policy of Human Resources can significantly affect the company’s overall performance, its profitability and net profit. In the compensation area, the competitive advantage usually produces a huge part of the overall competitive advantage in the management of Human Resources.

The competitive advantage of compensation means not beating the pay market by providing all the employees with bonuses and higher salaries. According to today’s managers, the better is the workers’ pay, the more competitive their business is. However, if the companies take the higher staff costs during the recession or crisis, it can bring a considerable competitive disadvantage in the compensation area. In this case, the company has to redesign its compensation strategy quickly; otherwise, its continuing operation will have a destroying impact on the overall satisfaction of employees. It is necessary and important for the companies to keep the targets of the entire compensation system when they think about the internal pay structure (Milkovich, Newman & Gerhart, 2014). The small companies set the higher than the average position on the pay market generating quite competitive advantage. However, they still have to fight and compete for the talented, skillful and experienced employees from the big companies that operate in the same industries.

It is quite hazardous for the company to establish a quite high pay market position since it will increase the company’s expenses. If companies cannot make fast and immediate changes and continue to carry high costs for functioning and operating, they will face the deadly dangerous recession. The company can choose a high competitive position on the pay market when it dramatically grows. All workers are equally important, and there is no time to think over the company’s main job positions. Today, many firms choose to invest huge resources in the performance management. However, afterwards, they provide minor differentiation in the compensation between employees, who demonstrate high performance and those, who demonstrate low performance (Fay, Knight & Thompson, 2001). Despite the fact that some companies oblige their workers to work in teams, they select, recruit and compensate their employees based on individual contributions.

Before the company designs its compensation program, it should have a clear understanding of its goals, personnel, current values, structure and future vision. The competitive advantage in the compensation area can be established just for the company’s major work positions. However, any firm can get a consensus about its key job positions. Reaching the consensus from the top management is an almost impossible mission, and Human Resources usually consider setting the key positions as a painful procedure. Despite difficulties, Human Resources department has to execute this process successfully. In the case if the company has identified the key positions, Human Resources can establish the proper compensation strategy for them. Embedding the compensation strategy within the broader strategy of Human Resources significantly affects the outcomes. Compensation as part of the overall Human Resources perspective does not operate alone (Becker, Huselid & Ulrich, 2001).

Establishing the different pay level for the key positions and different compensation strategies is quite common for the large companies since they can protect the main, leading employees and save the staff expenses. It provides no protection to the key workers automatically. However, it supports the managers and other processes associated with Human Resources. The competitive advantage for the main work positions is a good strategy for the developed organization that focuses on the product innovations and grows not aggressively. The key workers bring the innovations and get fair pay for the work content.

The strategic perspectives focus on the competitive choice that helps the company gain and reinforce the competitive advantage (Barney, 1991). A strategic vision for compensation is the following: a source of steady competitive advantage is the way the employees get compensation. The strategic management of compensation includes adjusting the compensation system to a wide variety of environmental conditions and business structures. The focus is to implement the entire system in a perfect way. The main challenge in managing the overall compensation is to comprehend how a pay system can make business successful and add value.