Case study: Maximize your compensation ROI with high-yield investments in human capital

• Published in: Compensation and benefits review 1998-03, Vol.30 (2), p.59
• Main Authors: LeBlanc, Peter V, Juan Pablo Gonzalez, Oxman, Jeffrey A
• Format: Article
• Language: English
• Subjects: Absenteeism; Case studies; Compensation; Competition; Costs; Decision making; Financial analysis; Human capital; Human resources; Market positioning; Merit increases; Opportunity costs; Photofinishing laboratories; Productivity; Return on investment; Trends; Wage & salary administration; Wages & salaries
• ISSN: 0886-3687; 1552-3837

Today some leading edge organizations are, before investing in pay, insisting on quantifying the linkages between pay and turnover, pay and productivity, pay and quality - in short, pay and the bottom line. By treating compensation dollars as they treat other assets, those organizations are beginning to apply the tools of financial analysis to what is potentially their largest recurring investment decision. In doing so, they effectively reclassify compensation as an investment to be harvested, rather than a cost to be controlled. In a business-driven compensation model, companies determine what to spend on compensation by quantifying the direct results of past compensation practices. They identify areas of their operation where pay - either because of the amount or the delivery mechanism - has not produced the desired performance results. Using this knowledge of the opportunity cost for existing programs, they can then structure future compensation programs in a way that improves historical return. A case study is presented of Qualex Inc.'s approach to making the switch from "traditional" compensation decision making to a business-driven approach.