Compensation in a Knowledge Based

Global Economy Learning Objectives

o The importance of rapidly growing global economy
o The relationship between employee costs and
organizational competitiveness and profitability
o The contribution of organizational compensation to
the lifestyle of the employees and their families
o The relationship among levels of education,
knowledge and skills, and work-related income

Compensation in a Knowledge Based

Global Economy
o Last century witnessed monumental changes in
social, political and economic systems throughout
the world
o Global economy focuses on Inflation, GDP, Monetary
policies, Trade tariffs, however Labor Costs
continue to remain of critical importance
o Labor costs continue to effect the survival of private
and public sector organizations
o Concept for providing the poor promoted hiring
practices resulted in many job holders making little
or no constructive contribution
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Compensation in a Knowledge-Based
Global Economy
o Providing jobs to non productive workers leads to
over staffing and often results inefficient operations
and corruption
o To survive in complex competitive global economy,
all organizations private or public must be able to
focus on effective and efficient delivery of the
products and services
o Performance based remuneration system for all
works (results in improved employee performance
thereby making organization more profitable and
competitive)
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Capitalism and Knowledge in a Global

Economy
What is Capitalism
Capitalism is an economic system in which trade,
industry, and the means of production are largely or
entirely privately owned and operated for profit
Central characteristics of capitalism include private
property, capital accumulation, competitive markets
and wage-labor
In a capitalist economy, the parties to a transaction
typically determine the prices at which assets, goods,
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and services are exchanged

Capitalism and Knowledge in a Global

Economy
What is Capitalism
Capitalism has existed under many forms of
government, in many different times, places, and
cultures
Following the demise of feudalism, capitalism
became the dominant economic system specially in
the Western World
Capitalism was carried across the world by broader
processes of globalization and became the dominant
global economic system
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Capitalism and Knowledge in a Global

Economy
World events have a major influence on
organizational operations
Critical factor underlying capitalism is that profit is
OK
To succeed and make profit, an organization must
have a motivated workforce
In a capitalistic world, employees must face
challenges of their work to get money as well as
satisfaction
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Capitalism and Knowledge in a Global

Economy
To survive, knowledge has become more and more
essential, hence passion for learning must exist
A major problem of capitalistic world is difference
between the lower-paid and higher-paid members of
work force, this disparity is increasing with higher
levels of knowledge
Some employees see their opportunities stagnant or
even decline

Capitalism and Knowledge in a Global

Economy

In past two decades, workforce size has been

reduced (downsizing or reduction), some levels in
management structure have been eliminated

HR and compensation professionals have been

asked to identify
Jobs in which workers efforts can be combined
Unneeded jobs
Jobs in which incompetent, obsolete or unneeded
employees are hidden
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Capitalism and Knowledge in a Global

Economy

At the same time HR / Compensation professionals

are asked to redesign and reward programs to
improve employee morale and motivation

The compensation professionals need to enhance

their own knowledge and skills dramatically
Importance of this function has risen manifold

Compensation and Organizational Strategy

Compensation program must support the strategic plan and
actions of the organization totally
HR/Compensation specialists task begins with determining
Work that must be performed by a team or individual
Kinds and levels of knowledge and skill required
Quality of people needed
Rewards, the organization can offer to promote work culture
Strategy that considers all four aspect becomes
competitive

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Integrating Knowledge and Skill Requirements,

Organization Compensation and Employee Income
To be successful in knowledge based world, each organization
must make full use of available technologies
Work does pay off, however to be successful the worker must
be willing to accept challenges and solve problems
In these situation of uncertainty, a focus on correctness is
necessary to minimize the chance and cost of improper action
Change is inevitable in the knowledge-based world, Change is
the ONLY CONSTANT
Successful adaption to change require continuous expansion
of knowledge and skills
Employee satisfaction directly relates to the income obtained
from work performed and life style opportunities made
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to the workers

Life Style and Compensation

Money-Pay is MOTIVATOR
Gone are the days when people used to think it is NOT
Pay exerts powerful influence on human behavior
To understand human behavior with money, it is critical to
recognize the relationship between lifestyle and social class
A social class consists of a group of people roughly
equivalent in an unequal society
Various criteria are used to measure status to differentiate
social classes, these include income, property, occupation
and education
Typical society is divided into three major classes upper,
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middle and lower

Pay and Social Class

From the dawn of civilization, humanity is divided
into at least two social classes the HAVES and the
HAVE NOTS
As society grew middle class appeared, members of
middle groups were traditionally government
employees
Motivation factors are different for each classes

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Social Class - Upper

Typical Characteristics of Upper class
They are few and far between in any society
They are employers
They usually exploit poor
They have usually common notion to make profit at
the expense of using poor
They have their own norms which are distinct from
the culture of middle and poor
They enjoy all luxuries of life

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Social Class - Middle

Typical Characteristics of Middle Class
Social mobility is found highest in this class
They live comfortably than poor class, but are financially lower
than upper class
They all are usually employees
They are usually exploited
Some of them have recently switched to middle class, therefore,
their norms are more likely to be similar to that of poor class. But
their kids are assured to have the distinct norms of middle class
This class usually postpones immediate enjoyment in order to
gain a big goal
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Social Class - Lower

Typical Characteristics of Lower Class
Social mobility is the lowest in them
Some of them are likely to be drug/narcotics addicted,
terrorists
Their enjoyment or plans do not last beyond sea
side/park trip
They are either unemployed, or get employment for
short term basis
Education, health, population welfare, housing, water
supply and sanitation remain major issues for
this
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class

Summary
To survive and be successful in a global economy an
organization must be competitive
Major factor underlying competitiveness is labor/staff costs
Organizations must recognize differences in individual
contributions and compensate accordingly
Major difference in contribution is related to knowledge and
skills, employee brings to the work place
It is important to understand the concept of social class and
differences in these classes
The pay and reward system of the organization must stimulate
acceptable levels of performance from all employees
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Money is important

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