The Antecedents and Consequences of Compensation Management: A

Meta-Analysis

1. INTRODUCTION
Lack Compensation Management is quite clearly the most dynamic issue in the Human Resources
Management world. To successfully achieve organizational objectives, it is a must to effectively manage
the human resource aspects within the company, considering one the main aspect of resource
management known as compensation management. Manager’s ability to accomplish the stated
objectives more or less rests on the smart implementation of compensation packages whilst motivating
the subordinates and employees beyond what they expect. Compensation Management plays a pivotal
role because it is the soul of Human Resources Management. It’s also crucial for the employees and
employer as employees’ wages and salaries depend on it and moreover should be equal to work done.
But, for managers, compensation decisions make or break business development costs and thus, their
ability of selling a competitive product at a competitive price (Barry et al, 1995). It’s quite clear that
thoughtful implementation of compensation management will not only aid in balancing and maintaining
attrition levels but also assists in minimizing labor turnover within the company. Employees’
compensation can be evidently seen in all forms of financial returns and tangible benefits received by
employees as part of employee-company relationship. It’ll be fair to say that it encompasses the
financial and non-financial rewards an employee gets in return for his/her labor service.

Compensation Management refers to the process of instituting the wage structure level of for the many
positions forming the incentive systems, calculating the individual wages and incentives within the
defined structures. It is a crucial part of Human Resources Management that affects employees’
performance as it links the relationship degrees between the employee and employer. Companies
majorly invest human resources in reward systems and practices to attract, retain and motivate
employees and in the process better individual teams and organizational effectiveness. The
organizational rewards ideally consist of financial of non-financial rewards such as appreciation, job
security and promotion.

Lack of research on employee compensation can have drastic results in the future. Without a shadow of
doubt, compensation is arguably the most important factor directly influencing the effectiveness and
quality of human capital. Compensation impacts the applicant’s quality, hiring quality, job acceptability,
performance and motivational level of the workforce and quality of attrition level within the company.
(Dineen & Williamson, 2012; Saks, Wiesner, & Summers, 1996; Shaw & Gupta, 2007). Despite an
abundance of boisterous opinions, its clearly evident that compensation has strong incentive and sorting
effects. (Gerhart & Rynes, 2003; Jenkins et al., 1998). With regards to organizational functioning,
compensation definitely shapes employee behavior and organizational effectiveness.
Employee compensation research is infrequent and scanty. A meta-analysis of over 4 decades of
research on financial incentives revealed just 39 studies, averaging one per year (Jenkins, Mitra, Gupta,
& Shaw, 1998). Of the 1200 sessions at the 2013 annual meetings of the Society for Industrial and
Organizational Psychology (SIOP), shockingly, only 3 relate to compensation, rewards or benefits. In
the same lines, the program of the HR division of the Academy of Management showed up only 3
sessions pertaining to compensation, among plenty devoted to other topics, at the 2012 annual meetings.
Of 111 articles published in Personnel Psychology in 2003–2007, just 2 emphasized compensation
issues, whereas only 7 out of 457 studies in Journal of Applied Psychology (Cascio F & Aguinis, 2008).

Both qualitative reviews (Gerhart & Fang, 2014; Shaw & Gupta, 2015) and meta-analytic studies
(Cerasoli, Nicklin, & Ford, 2014; Garbers & Konradt, 2014; Jenkins, Mitra, Gupta, & Shaw, 1998) have
reveled that extrinsic rewards (such as financial incentives) can boost employee motivation &
performance and shape employee health (Giles, Robalino, McColl, Sniehotta, & Adams, 2014) and
safety behavior (Mattson, Torbiörn, & Hellgren, 2014). But evidence pertaining under which conditions
certain rewards are highly effective or guide to fortuitous consequences are remote. In short,
compensation and incentive systems remain the least researched areas in personnel psychology and
human resource management (Gupta & Shaw, 2015).

Reward Management approaches may be futile when it comes to efforts with regards time and money,
and is unproductive in attracting, holding onto, motivating target personnel, if not prohibited in a base of
evidence. Append to this, the recent financial crisis and ever growing cases of employee-company
unethical behavior, financial incentives of the company, especially bonus and pay-for-performance (pfp)
systems have garnered wide criticism for their inimical effects on individuals, companies and society
(Larcker, Ormazabal, Tayan, & Taylor, 2014). These concerning examples of incentives outlay the
importance of reward management research, not just from HRM point of view but also from the societal
perspective.

Commonly asked question, ‘if pay systems can be used to motivate better performance, can they be used
to motivate other desired behaviors too? Its often said that rewards positively impact and generate
positive behavior. Meaning, compensation systems can be the main driving force in motivating a
plethora of desired behaviors. Mattson, Torbiörn, and Hellgren address this issue in their paper. Their
approach is qualitative wherein they decipher the effects on bonus systems on safety behaviors in
nuclear plants. The resulting data indeed suggests that financial incentives can in fact promote safety.
It’s crucial to note that major problems or downsides clear from the use of money in the safety context
they describe.

Employees forever face huge demands and chase multiple goals simultaneously. However, the dearth of
resources may not always fulfill their objective to meet all demands and reach the set goals and
therefore employees need to adapt with changing demands so as to be successful.
2. RESEARCH METHODOLOGY
3. LITERATURE REVIEW
Introduction :

You give your employees a regular paycheck. But, you might also give other wages to your employees.
Do those other wages count as compensation? Compensation is the total cash and non-cash payments
that you give to an employee in exchange for the work they do for your business. It is typically one of
the biggest expenses for businesses with employees. Compensation is more than an employee’s regular
paid wages. It also includes many other types of wages and benefits. Compensation may achieve several
purposes assisting in recruitment, job performance, and job satisfaction. Compensation may refer to the
direct and indirect benefits that a worker receives from an employer. The term also refers to how much
somebody has to pay a victim wrongdoing. That wrongdoing may have resulted in damage to property
or injury to a person. When it refers to an employee’s pay package, we call it compensation and
benefits. Successful employers develop programs that outline equitable processes to reward their
workers and executives. Employers structure their pay and benefit packages to attract the best
employees. They also try to structure them so that their workers stay in the company.

Definition:

According to the Cambridge Dictionary, compensation is:

“1. Money that is paid to someone in exchange for something that has been lost or damaged or for some
problem.”

“2. The combination of money and other benefits (= rewards) that an employee receives for doing their
job.”

Compensation consists of a combination of an employee’s pay, vacation, health insurance, and bonuses.
It also includes other perks, such as a company car, free parking, free or cheap meals, commuting costs,
etc.

Types of Compensation

Types of compensation include Base pay (hourly or salary wages), Sales commission, Overtime wages,
Tip income, Bonus pay, Recognition or merit pay, Benefits (insurances, standard vacation policy,
retirement), Stock options and Other non-cash benefits. Base pay is the initial pay you give your
employees. The base pay rate is essentially the minimum amount an employee can expect to receive
before taxes and other deductions. Base pay includes an employee’s base salary or hourly wages. It also
includes shift differentials and pay for special assignments.

An employee’s base pay does not include compensation that might raise the wages above the base level.
For example, bonuses, overtime, and commissions are not part of base pay. These types of pay are
included in the employee’s total compensation. Gross pay is the amount an employee earns before taxes
and other deductions are subtracted. Net pay is the amount the employee takes home after everything is
subtracted. An employee’s base compensation is part of both gross and net wages. But, gross and net
wages might include other compensation too, such as overtime wages. An employee’s base pay might
be their gross wages if there are no other compensation types to add. Compensation is a tool used by
management for a variety of purposes to further the existance of the company. Compensation may be
adjusted according the the business needs, goals, and available resources. It may be used to: recruit and
retain qualified employees, increase or maintain morale/satisfaction, reward and encourage peak
performance, achieve internal and external equity, reduce turnover and encourage company loyalty,
modify (through negotiations) practices of unions.

Recruitment and retention of qualified employees is a common goal shared by many employers. To
some extent, the availability and cost of qualified applicants for open positions is determined by market
factors beyond the control of the employer. While an employer may set compensation levels for new
hires and advertise those salary ranges, it does so in the context of other employers seeking to hire from
the same applicant pool.

Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be
reached between the monetary value the employer is willing to pay and the sentiments of worth felt be
the employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the
expense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may
seek to increase salaries and salary levels. Compensation may also be used as a reward for exceptional
job performance. Examples of such plans include: bonuses, commissions, stock, profit sharing, gain
sharing. Compensation will be perceived by employees as fair if based on systematic components.
Various compensation systems have developed to determine the value of positions. These systems
utilize many similar components including job descriptions, salary ranges/structures, and written
procedures.

Components :

The components of a compensation system include :

- Job Descriptions is a critical component of both compensation and selection systems, it defines in
writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other
aspects of jobs. Descriptions may be developed for jobs individually or for entire job families.
- Job Analysis is the process of analyzing jobs from which job descriptions are developed. Job analysis
techniques include the use of interviews, questionnaires, and observation.
- Job Evaluation is a system for comparing jobs for the purpose of determining appropriate
compensation levels for individual jobs or job elements.
There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. Pay
Structures is useful for standardizing compensation practices. Most pay structures include several grades
with each grade containing a minimum salary/wage and either step increments or grade range. Step
increments are common with union positions where the pay for each job is pre-determined through
collective bargaining.
- Salary Surveys is the collections of salary and market data. May include average salaries, inflation
indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys
conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of
salary surveys conducted by other vendors, note that surveys may be conducted within a specific
industry or across industries as well as within one geographical region or across different geographical
regions. Know which industry or geographic location the salary results pertain to before comparing the
results to your company.
- Policies and Regulations affecting compensation is Fair Labor Standards Act (FLSA).

How Is Compensation Determined?

Companies base compensation on numerous factors. Some companies pay more attention to the
following factors than others do but almost all companies use some form of analysis to set
compensation.

- Market research about the worth of similar jobs in the marketplace: Numerous companies do
formal salary surveys that can help companies determine the market rate of a job. In these salary
surveys, companies report their current pay and benefits for jobs based on the job description. The
survey company then compiles the data and reports it back to the participants. These findings can be
extremely accurate. They provide good insight into the competitive rates employers are paying in the
marketplace for the employees performing the same or similar job duties.

-There are also online database websites for salary information, where data is collected nationally and
internationally. These sites such as Payscale.com and Salary.com provide recommended salary ranges
taking into consideration factors such as the job market, the location of the job, the size of the company
offering the job, and the job duties and responsibilities.

Payscale.com is recommended for its accuracy in the midwest. According to PayScale.com, "PayScale
links individuals and businesses to the largest salary profile database in the world."

Other companies look at the data that is available on the internet, from websites like Glassdoor.com.
The data is not as accurate as that of a salary survey because they are self-reported by the employees.
They are not comprehensive on all of the components of an employee compensation package either.

The job descriptions these salaries are based on are not as detailed as the ones in the salary surveys. Two
people with wildly different responsibilities in two different companies may have identical titles,
resulting in confusion as to what the appropriate compensation really should be for the employee.

It is also critical to consider local economies and company size. For instance, you will need to pay an
administrative assistant to the CEO of a Fortune 100 company in New York City considerably more
than the administrative assistant to the CEO of a company with 30 people in a small town in Iowa. Their
job titles are identical—Administrative Assistant to the CEO—but their pay is completely different.

Employee contributions and accomplishments: You want your star employee to make more than your
slacker employee, even if they have the same title. Companies recognize the difference in how much an
employee contributes to the company through pay differentiation with merit increases going to their
best. (But, ask yourself with some honesty, if you determine an employee is unworthy of compensation
increases, why are you employing this individual?).

The availability of employees with like skills in the marketplace: When only one person in the town has
a particular skill and two companies need that skill, the bidding wars can start. When only one company
needs a particular skill and has two people to choose from who can both do it, they don't need to pay the
employee as much money. The organization with alternatives does not need to compensate the chosen
employee with more than the going market rate.

The desire of the employer to attract and retain a particular employee: If a company really wants a
particular employee, then they'll pay more. If a company has a reputation as a horrible place to work,
they may need to pay more to attract employees, for example.

The profitability of the company or the funds available in a non-profit or public sector setting: Often,
non-profit or public sector businesses pay less. People are willing to work for them anyway because
they believe in the mission and vision of the organization. The work of the organization may
be consistent with their own personal values.

Or, in the case of government employment and unionized workplaces, the employees may value their
job security and expected increases in an increasingly volatile world—more than they value increased
compensation.

Some public sector jobs have low pay checks, but high benefits, such as health insurance and pensions.
With compensation, you need to look at the whole picture in both the public and the private sectors.

Previous salaries: Basing your salary offer on an employee's previous salaries is a horrible way to
determine a salary for a new employee. (And nationally, in a number of locations, it is now illegal.) But
many companies look at your salary from your last job and increase it by a small percentage. This can
result in unfair compensation and discord within the company.

For example, when Bob was making $50,000 at company A and gets a 10 percent raise to come on
board, he's probably happy with his $55,000. But, when he finds out that Jane, who has the same title
and responsibilities, is making $66,000 a year because she was earning $60,000 at her previous
company, he'll be angry.

He may claim that the reason for the discrepancy is gender discrimination, and the company will be
forced to prove otherwise.
Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition
rewards and checks, and sales commission. Compensation can also include non-monetary perks such as
a company-paid car, stock options in certain instances, company-paid housing, and other non-monetary,
but taxable, income items.

Compensation is a fascinating topic, because, face it, people have various reasons for working, but the
bottom line is that most employees work for money. It is in the best interests of an employee to try to
receive more compensation. It is in the best interests of an employee to work their way up the corporate
ladder to the executive level so that they can earn increasingly more money.

It's not in the best interests of an employer to have disgruntled, unhappy employees who feel they are
underpaid. But, offering fair market compensation with generous benefits should help the employer
make his wish come true—a thriving, contributing workforce in sync with the business aims and needs.

Factors affecting Compensation:

There are various factors affecting compensation:

Internal factors: The internal factors exist within the organization and influences the pay structure of the
company. These are as follows:

- Ability to Pay-The prosperous or big companies can pay higher compensation as compared to the
competing firms whereas the smaller companies can afford to maintain their pay scale up to the level of
competing firm or sometimes even below the industry standards;

- Business Strategy-The organization’s strategy also influences the employee compensation. In case the
company wants the skilled workers, so as to outshine the competitor, will offer more pay as compared to
the others. Whereas, if the company wants to go smooth and is managing with the available workers,
will give relatively less pay or equivalent to what others are paying;

- Job Evaluation and Performance Appraisal-The job evaluation helps to have a satisfactory differential
pays for the different jobs. The performance Appraisal helps an employee to earn extra on the basis of
his performance;

- Employee-The employee or a worker himself influences the compensation in one of the following
ways;
-Performance-The better performance fetches more pay to the employee, and thus with the increased
compensation, they get motivated and perform their job more efficiently;

-Experience-As the employee devote his years in the organization, expects to get an increased pay for
his experience;
 -Potential-The potential is worthless if it gets unnoticed. Therefore, companies do pay extra to the
employees having better potential as compared to others.

External Factors: The factors that exist out of the organization but do affect the employee compensation
in one or the other way. These factors are;

-Labor Market-The demand for and supply of labor also influences the employee compensation. The
low wage is given, in case, the demand is less than the supply of labor. On the other hand, high pay is
fixed, in case, the demand is more than the supply of labor;

-Going Rate-The compensation is decided on the basis of the rate that is prevailing in the industry, i.e.
the amount the other firms are paying for the same kind of work;

-Productivity-The compensation increases with the increase in the production. Thus, to earn more, the
workers need to work on their efficiencies, that can be improved by way of factors which are beyond
their control. The introduction of new technology, new methods, better management techniques are
some of the factors that may result in the better employee performance, thereby esulting in the enhanced
productivity;

-Cost of Living-The cost of living index also influences the employee compensation, in a way, that with
the increase or fall in the general price level and the consumer price index, the wage or salary is to be
varied accordingly;

-Labor Unions-The powerful labor unions influence the compensation plan of the company. The labor
unions are generally formed in the case, where the demand is more, and the labor supply is less or are
involved in the dangerous work and, therefore, demands more money for endangering their lives. The
non-unionized companies or factories enjoy more freedom with respect to the fixation of the
compensation plan;

-Labor laws-There are several laws passed by the Government to safeguard the workers from the
exploitation of employers.The payment of wages Act 1936, The Minimum wages act 1948,
The payment of Bonus Act 1965, Equal Remuneration Act 1976, Payment of Gratuity Act 1972 are
some of the acts passed in the welfare of the labor, and all the employers must abide by these. Thus,
there are several internal and external factors that decide the amount of compensation to be given to the
workers for the amount of work done by them.

CONSEQUENCES OF PAY DECISIONS: THEORIES:

In truth, there is as of yet no grand theory of compensation that takes these contingency factors into
account, although recent work by Gomez-Mejia and Balkin (1992) is promising. In examining
consequences, we need to recognize that effectiveness is a multi-faceted concept that could include at a
minimum, cost, productivity, innovation, quality, financial, and attitudinal dimensions. Further, the
relative importance of these dimensions will vary across organizations and business units. At the
individual level of analysis, theories have been used to show how pay plans can be used to energize,
direct, and control employee behavior. We briefly describe three such theories used in research on pay.

Reinforcement and Expectancy Theories :

Reinforcement theory states that a response followed by a reward is more likely to recur in the future
(Thorndike's Law of Effect). The implication for compensation management is that high employee
performance followed by a monetary reward will make future high performance more likely. By the
same token, high performance not followed by a reward will make it less likely in the future. The theory
emphasizes the importance of a person actually experiencing the reward. Like reinforcement theory,
expectancy theory (Vroom, 1964) focuses on the link between rewards and behaviors (instrumentality
perceptions), although it emphasizes expected (rather than experienced) rewards (i.e., incentives).
Motivation is also a function of two other factors: expectancy, the perceived link between effort and
performance, and valence, the expected value of outcomes (e.g., rewards). Compensation systems differ
according to their impact on these motivational components. Generally speaking, pay systems differ
most in their impact on instrumentality: the perceived link between behaviors and pay, also referred to
in the pay literature as "line of sight." Valence of pay outcomes should remain the same under different
pay systems. Expectancy perceptions often have more to do with job design and training than pay
systems.

Equity Theory :

Equity theory suggests that employee perceptions of what they contribute to the organization, what they
get in return, and how their return-contribution ratio compares to others inside and outside the
organization,' determine how fair they perceive their employment relationship to be (Adams, 1963).
Perceptions of inequity are expected to cause employees to take actions to restore equity. Unfortunately,
some such actions (e.g., quitting or lack of cooperation) may not be helpful to the organization. Two
recent empirical studies provide good examples of the types of counterproductive behaviors that can
occur as a result of perceived inequity. In the first study, Greenberg (1990) examined how an
organization2 communicated pay cuts to its employees and the effects on theft rates and perceived
equity. Two organization units received 15% across-the-board pay cuts. A third unit received no pay cut
and served as a control group. The reasons for the pay cuts were communicated in different ways to the
two pay-cut groups. In the "adequate explanation" pay-cut group, management provided a significant
degree of information to explain its reasons for the pay cut, and also expressed significant remorse. In
contrast, the "inadequate explanation" group received much less information and no indication of
remorse. The control group received no pay cut (and thus no explanation). The control group and the
two pay-cut groups began with the same theft rates and equity perceptions. After the pay cut, the theft
rate was 54% higher in the adequate explanation group than in the control group. However, in the
"inadequate explanation" condition, the theft rate was 141% than in the control group. In this case,
communication had a large, independent effect on employees' attitudes and behaviors. Cowherd and
Levine (1992) used a sample 102 business units in 41 corporations to examine whether the size of the
pay differential between lower-level employees and top management had any impact on product quality.
Cowherd and Levine suggest that individuals often compare their pay to that of people higher in the
organization structure. If lower-level employees feel inequitably treated, they may seek to reduce their
effort to achieve equity. Quality, in their study, was defined as customer perceptions of the quality of
goods and services. They hypothesized that extra role, or citizenship behaviors, such as freely offering
to help others, following the spirit rather than letter of rules, and correcting errors that would ordinarily
escape notice, would be less likely when pay differentials between hourly and top managerial employees
were large. Their results supported this hypothesis, suggesting that organizations need to take care that
they not forget the potential adverse motivational consequences of executive pay for the motivation of
other employees.

Agency Theory :

Agency theory, until recently best known in the economics, finance, and law literatures, focuses on the
divergent interests and goals of the organization's stakeholders, and the ways that employee
compensation can be used to align these interests and goals (Eisenhardt, 1989; Fama & Jensen, 1983).
ownership and management (or control) are typically separate in the modern corporation, unlike the
days when the owner and manager were often the same person. With most stockholders far removed
from day-to-day operations, so-called agency costs (i.e., costs that arise from the interests of the
principals/owners and their agents/managers not converging are created. What is best for the
agent/manager, may not be best for the owner. Examples of agency costs include management spending
money on perquisites (e.g., "superfluous" corporate jets) or "empire building" (acquisitions that do not
add value to the company but may enhance the manager's prestige or pay) rather than seeking to
maximize shareholder wealth (Lambert & Larcker, 1989). In addition, the fact that managers and
shareholders may differ in their attitudes toward risk gives rise to agency costs. Shareholders can
diversify their investments (and thus their risks) more easily than managers can diversify risk in their
pay. As a consequence, managers may prefer relatively little risk in their pay (e.g., high emphasis on
base salary,-low emphasis on uncertain bonuses or incentives). Indeed, research shows that managerial
compensation in manager-controlled firths is more often designed in this manner (Tosi & Gomez-Mejia,
1989). Agency costs also stem from differences in decision-making horizons. Especially where
managers expect to spend little time in the job or with the organization, they may be more inclined to
maximize short-run performance (and pay), perhaps at the expense of long-term success. Agency theory
is also of value in the analysis and design of non-managers' compensation. In this case, the divergence
of interests may exist between managers (now in the role of principals) and their employees (who take
on the role of agents). In designing either managerial or non-managerial compensation, the key question
is, "How can such agency costs be minimized?" Agency theory says that the principal must choose a
contracting scheme that helps align the interests of the agent with the principal's own interests (i.e.,
reduces agency costs). These contracts can be classified as either behavior oriented (e.g., merit pay) or
outcome oriented (e.g., stock options, profit sharing, commissions). At first blush, outcome-oriented
contracts seem to be the obvious solution. If profits are high, compensation goes up. If profits go down,
compensation goes down. The interests of "the firm" and employees are aligned. An important
drawback, however, is that such contracts increase the amount of risk borne by the agent. Furthermore,
because agents are averse to risk, they may require higher pay (a compensating wage differential) to
make up for it. Behavior-based contracts, on the other hand, do not transfer risk to the agent, and thus do
not require a compensating wage differential. However, the principal must be able to monitor with little
cost what the agent has done. Otherwise, the principal must either invest in monitoring/information or
structure the contract so that pay is linked at least partly to outcomes. Reinforcement, expectancy, and
agency theories all focus on the fact that behavior-reward contingencies can shape behaviors. However,
agency theory is of particular value in studying variable pay because of its emphasis on the risk-reward
trade-off, an issue that needs close attention when considering variable pay plans, which can carry
significant risk. Equity theory is also very relevant because it can be applied to just about any pay
decision, because fairness is always a key concern.

7 Keys To An Effective Compensation Strategy :

1. Budget Allocation

The strategy should include the organization’s approach to allocating compensation dollars into salary
and benefits.This budget allocation will determine how much of the total compensation budget will be
spent on salary and what percentage will be spent on benefits and other incentives.

For example, for a budget of $1000 for compensation, if 90% is salary and 10% is benefits, you need to
determine how that 10% is spent – one scenario might be – 7% on health benefits, 2% on retirement
savings and 1% on tuition reimbursement.

Allocating specific budget dollars to pay and benefits can help control labor, health care and other
miscellaneous benefit costs.

2. Develop Salary Ranges

Develop salary ranges to ensure employee pay is competitive with other organizations. To be
competitive, it is important to benchmark like jobs within the same industry and create a pay
structure.Salary ranges can be developed internally by conducting research or utilizing sites
like salary.com or payscale.com to determine average salaries in a particular geographic area.

Smaller organizations often pay a vendor to help develop salary ranges, whereas larger organizations
may have the HR resources to conduct the research internally.Regardless, it is important to look at all
jobs and determine what work is done, how the job is slotted and establish salary ranges that match all
job descriptions.

3. Salary Audits

Markets change therefore it is important to perform routine salary audits to ensure salary ranges reflect
current compensation trends in a particular industry.When performing an audit, the goal is to determine
how competitive are those particular jobs and what is the external market demanding.

It is important to pay attention to market changes and to stay current because failing to keep up with the
competition can lead to loss of valuable employees.
4. Benefit Package

Many organizations use benefit packages, in addition to salary, to attract and retain employees.Their
goal is to be competitive with health, retirement, tuition reimbursement and other benefits because they
understand that it can be the determining factor for a job candidate who is deciding whether to accept a
position with an organization, or an employee who is considering leaving.

For instance, I know employees who have stayed with organizations because the benefits were too good
to walk away from.

5. Performance Management System

It is important to have a structured performance management process to ensure employees are meeting
corporate objectives and are assessed on a regular basis. This process should include development of
annual goals, annual performance appraisals and a structured process for coaching and mentoring
employees.

Compensation strategies can positively influence employee engagement and improve employee
productivity.

6. Legal Compliance

A well-defined compensation strategy will incorporate legal requirements to ensure the organization is
in compliance with all federal and state laws.

The goal is to eliminate natural biases made in hiring decisions and ensure compliance with DOL
FLSA laws such as minimum wage, overtime pay or Lilly Ledbetter Fair Pay.

7. Structured Administration

As with any other business process, structure is important. Develop an annual review process, salary
audit, raise process timeline and make sure someone is responsible for all compensation areas.

Finally, a comprehensive compensation strategy can be the foundation for creating an environment that
recognizes and rewards employee performance and helps to establish a strong culture of employee
engagement.

Organizations are only as successful as their approach to hiring the right people, setting clear
expectations, managing performance and recognizing and rewarding employees for a job well done
4. DISCUSSION
5. LIMITATION AND FUTURE RESEARCH DIRECTIONS