Welcome to the very first video or the very first lesson of the very first module of our course on managing employee compensation. In this video we are going to be talking about the overview of the pay model. So first of all, let's start with the People Manager Value Proposition. So this begins with the organizational objectives, needs and values. If it's a for profit organization, we might refer to this as the business strategy. And our business strategy will be very different if we're in an organization that might rely on operational efficiency and low cost versus one such as maybe a tech company that relies more on developing new products and then bringing those to market. And depending on our organization, this will often depend on what it is that we need our people to accomplish. Do we need to serve underserved populations as a non profit with that mission? Or our constituents as a government organization? Or do we need our people to again bring innovative new products to market, or contain cost? These are all different potential organizational goals, and these are going to define our HR strategy. That is, how it is that we achieve our goals through the employee performance. And that's going to vary a lot, and that's going to determine who it is that we want to attract and retain, how it is that we manage their performance and also how we motivate and reward them. The kind of person who would excel at a mission driven organization could be very different from the kind of person who would excel at an organization that is relying on keeping costs low, versus one that is trying to be very innovative. And we're not going to be focusing on this last part, that is how to motivate and reward employees. And so, what are the tools that we have at our discretion? So we have lots of tools but we're going to focus on, in particular, compensation elements. So, the first part is the total cash. We conclude total cash to mean both the base cash or salary, and also the short term incentives. The first module focuses on pay determination, and then also on short term incentives. We think of short term incentives as things such as commissions, or bonuses, or other short term incentive awards where we try to link our key performance indicators to those immediate methods of compensation. Now going up from there we also have total direct cash, total direct cash includes base cash, short term incentives and long term incentives. Those long term incentives tie the long term performance of our organization to long term rewards. Those are examples of long term incentives would be, for example, a stock option. And then lastly we have total comp or the pay mix. Total comp includes the total value of all the base cash, short term incentives, long term incentives, and the benefits and perks. And the pay mix includes how we distribute the resources between them. And benefits and perks for example include things such as pension contributions, health insurance, and other benefits that are, that the company both elects to give and also those that are required by law. Going up even further we have the employee value proposition. These are all of the things that make a company, that makes an employee want to come to work in the morning. This is what attracts them. This is what motivates them. This is what retains them. They include not just compensation but they also include all of the non cash awards. All the things that makes a job rewarding. We'll also go into the strategic messaging model. So this model maps how you think about compensation and the mix of that compensation and then the messaging around that compensation. So you can get the person that you want to attract, retain and motivate. So let's start with money. So money, the first element of our strategic messaging model includes just the simply the size of the compensation package. So that includes, so, for example it includes, whether you're allocating a lot of resources to compensation. Perhaps, paying the 25th percentile of the market for total compensation. Perhaps you're paying the median or perhaps you're paying the 75th percentile, that is you're trying to pay more than 75% of your competitors. The second consideration is the Mix. So depending on who you want to attract, retain and motivate, you might shift the allocation of those compensation expenditures to the right element of the pay mix to get that kind of person who you want. So, for example, we might choose a pay mix that prioritizes base cash if we want someone, to attract people who are highly skilled. We might try to allocate a larger portion of our pay mix to short term incentives and try to beat the market on short term incentives. If we want to attract people who are confident in their abilities, then we also want to motivate then to do their job duties well. We might have a pay mix that prioritizes long-term incentives if we're trying to have an organization that really focuses on the alignment of an individual's activities to the broader organization's goals, and that also wants to have a pay mix that prioritizes retention. Because tools such as stock options are typically valuable for employees who stay around the organization for long enough for those options to vest. Or you might have an organization that really prioritizes the company's culture and is more egalitarian when it comes to their pay mix but it also has a relatively perhaps paternalistic view of all of the things that the company offers to its employees. None of this means anything unless you're able to really drive the message home on what the element of this pay mix means to your employees. You want to say, this is our pay mix. This is how we try to compensate employees, this is the philosophy. For example, we are an organization that tries to prioritize pay for performance and you have that messaging and then that's reflected in the pay mix, it's reflected in the compensation expenditures. And so our strategic messaging model and throughout what we'll be doing in this Coursera course will be to talk about not just the different elements of the pay mix and kind of the technical nitty gritty about how to implement those. But also try to talk about again the money, the mix and the messaging, how to tie this to who you want to attract to retain and to motivate, and how this fits into the broader business strategy. Thanks and I will see you next time when we talk about examples of how we align our pay strategy to our business strategy.
