What is the relationship between business strategy, HR strategy, and compensation strategy?

The relationship between business strategy, HR strategy, and compensation strategy is best understood as sequentially related. This means that each strategy influences the subsequent one; the business strategy provides the overarching goals and objectives of the organization, which in turn shape the HR strategy aimed at aligning human resources with those business goals. Once HR strategy is established, it directly informs the compensation strategy, which must support the recruitment, retention, and motivation of talent in alignment with the HR and business strategies.

Understanding this sequential relationship emphasizes the importance of strategic coherence. For instance, if a company’s business strategy focuses on innovation, the HR strategy may focus on attracting creative talent, which necessitates a compensation strategy that offers competitive salaries and incentives that attract innovative minds. This interconnected progression ensures that all strategies work collaboratively toward achieving the organization’s objectives, making alignment paramount in driving success.