Impact of Compensation Changes

The Impact of Compensation Practices

February 20, 2011

“The ultimate goal of a pay system is to align the goals and interests of employees

with the goals and interests of the organization” – Robert L. Heneman

The Impact of Compensation Practices

The business arena is ever changing. Where people work, how they work, the relationships in the workplace and compensation for their work continues to change. Hence, “It will be the challenge of compensation professionals to devise ways to reward and motivate employees who work under increasingly flexible arrangements” (Bennett, 1995).

Most people interchange and have the perspective that pay and compensation are the same when in reality, compensation is more than just monetary rewards. Compensation is often misunderstood, and can also be misapplied. More often than not, it is out of synch with the values and processes of an organization. This is because despite continued organizational changes, the actual strategies for administering and implementing compensation is misaligned with the rapid changes in the company. “Pay can no longer be seen as a mere expense and cost of doing business, but instead must be viewed as an investment that is closely linked to the long-term success of the organization” (Flannery, et. al., 1996). As Cable and Judge (1994) note, “compensation systems are capable of attracting (or repelling) the right kinds of people because they communicate so much about an organization’s philosophy, values and practices”.

Traditional vs New

In the next decade, no job will be entirely secure. The “start up” companies will continue to be uncertain. Large companies may simply offer the stability and security but with a limited guarantee of long-term employment. The average American will most likely work in ten or more different types of jobs and at least five different companies before he or she retires (Boyett and Conn, 1991). Traditionally, one would be able to join one company and...