PAY AND INCENTIVE

SYSTEMS
CHALLENGES
1. How do perseptions of unfairness develop?
2. What are some of the predictable consequences of the “trust gap”?
3. What are some strategies for reducing the “trust gap”?
Three Major Changes in Pay Philosphy
1. Increased willingness to reduce the size of the workforce and to
restrict pay
2. Less concern with pay position relative to competitors, and more
concern with what the company can afford
3. Implementation of program to encourage and reward performance-
thereby making pay more variable
Three Forms Of Equity

Internal
Equity

Forms
Of
Equity
External Individual
Equity Equity
Strategic Compensation
• Compensation is a pivotal control and incentive mechanism that can
be used to achieve business objectives
• Compensation plans need to be tied to an organization’s strategic
mission, and take their direction from that mission, e.g., innovation,
cost leadership
• Integrate pay considerations into planning and control
• Overall organizational performance is the ultimate criterion of the
success of strategic pay decisions and operational compensation
programs