Print Сite this

Organization’s Compensation System


In most organizations the management compensates their employees so as to motivate them and hence increase the organizations level of production or to develop high performance. The research paper discusses the goals of an organization’s compensation system and the various factors that influence a company’s competitive strategies and compensation practices.

We will write a
custom essay
specifically for you

for only $16.05 $11/page
308 certified writers online
Learn More

Goals of an organization’s compensation system

The system or the strategy used by the management to compensate its workers is mostly influenced by the roles of the employees in the organization. This is because it motivates employees to accept more responsibilities and accountability. Organizational goals and objectives have to be in line with the compensation strategy implemented by the firm (Milkovich, 1987, p.3).

The organization financial status both long-term and short-term determines the compensation strategy that a company uses (Milkovich, 1987, p.12). The financial resources of a firm should be able to sustain the rewards needed to compensate the employees currently and in future. Therefore when an organization does not have enough financial resources needed to continually compensate the employees it should implement a cheap compensation practice.

The other goal of the compensation strategy used by an organization is to ensure that the firm continues seeking new information on how to reward employees so as to increase the level of productivity of the organization. Therefore the company should continually change the rewarding systems according to the new compensating trends in the corporate world (Heneman.2002.P.504). This will help to motivate employees to accept more responsibilities and accountability in an organization. Compensation strategy of motivating and increasing the productivity of employees leads to the achievement of business strategy.

Factors influencing a company’s competitive strategies and compensation practices

According to Heneman ( 2007,p.12) when designing, implementing and evaluating the compensation strategy to be used in an organization some factors such as the business environment and business strategy has to be put into consideration. Business environment includes the internal and the external environment. The internal environment of a business include: business processes, the organizational structure and the human resource systems (Heneman.2002.P.504). The external environment of a business which have to be put into consideration before an organization implements its compensation strategy include; labor markets, and the laws and regulation of the firm or the country. Business environment influences the performance of an organization. Business strategy is the long term plan that is designed to achieve the organizational goals and objectives

Some of the compensating practices adopted by many organizations are merit pay, variable pay, individual incentives and market based pay. According to Heneman organization employ skilled employee who are competent so that they can bring valuable contribution towards the growth of an organization. Therefore these employees should be well compensated so that they can be motivated and hence become more productive. In addition, they should be well compensated so that they can accept more responsibilities and also become more accountable. For example those with many responsibilities should be given individual incentives such as promotions. Moreover business processes should be put into considerations when the management is deciding on the compensation practice to implement (Heneman, 2007, p.18). This is because employees have to be well motivated so that human resource which is a major asset in an organization can be continually supplied. For example the kind of compensation practice adopted in an organization influences employees to exploit their talents.


In an organization the employees should be compensated as away of achieving the business strategy. The business financial resources determine the compensation practice to be implemented in an organization. Therefore the organization should have enough financial resources so to continually provide compensation to its employees. It should also continually investigate new compensation trends in the business world. The major factors that affect the compensation practices used by an organization are the business environment and business strategy.

Get your
100% original paper
on any topic

done in as little as
3 hours
Learn More

Reference list

  1. Heneman.L.R., (2002). Strategic reward management: design, implementation, and Evaluation; IAP, 2002.
  2. Milkovich.T.G. (1987). A Strategic perspective on compensation management.

Cite this paper

Select style


StudyCorgi. (2021, December 1). Organization’s Compensation System. Retrieved from


StudyCorgi. (2021, December 1). Organization’s Compensation System.

Work Cited

"Organization’s Compensation System." StudyCorgi, 1 Dec. 2021,

1. StudyCorgi. "Organization’s Compensation System." December 1, 2021.


StudyCorgi. "Organization’s Compensation System." December 1, 2021.


StudyCorgi. 2021. "Organization’s Compensation System." December 1, 2021.


StudyCorgi. (2021) 'Organization’s Compensation System'. 1 December.

This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal.