Designing a Compensation System

An employee’s paycheck is certainly important for its purchasing power. In most societies, however, a person’s earnings also serve as an indicator of power and prestige and are tied to feelings of self-worth. In other words, compensation affects a person economically, sociologically, and psychologically.10 For this reason, mishandling compensation issues is likely to have a strong negative impact on employees and, ultimately, on the firm’s performance.11

The wide variety of pay policies and procedures presents managers with a two-pronged challenge: to design a compensation system that (1) enables the firm to achieve its strategic objectives and (2) is molded to the firm’s unique characteristics and environment. ...

Get Managing Human Resources, Eight Edition now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.