Abstract:

Compensation strategy expresses the longer term direction for compensation policies, practices and processes. The aim of compensation strategy is to influence achieving business goals and meeting the needs of stakeholders. Compensation strategy should bring the organization to the achievement of organization’s strategic objectives, established by organizational vision, mission and business strategy and it is in way a declaration of intent which expresses what the organization wants to do in the longer term to develop and implement compensation policies, practices and processes that will support the achievement of its business goals (Armstrong  and  Stephens, 2005:25). However, the area of compensation system design offers a great plurality where managers and researches need to discover organizational specific and contingent pay systems (Thorpe and Homan, 2000). Just as all organizations are different, compensation strategies also differ. Compensation strategy is a multilayered phenomenon: it provides a sense of purpose for pay policies and practices, but all with the aim of achieving higher, business goals. Similar aspects of compensations are found in compensation strategies of different organizations but they will be treated differently according to variations between organizations. Enhancing employee commitment and engagement is usually the final goal of any compensations system although the strategy to achieve it can differ greatly depending upon organizational characteristics. Several design issues need to be explored before adopting a certain compensation scheme. For example, a firm should consider among job or person based pay, performance based pay, market position, internal-external equity, centralized or decentralized compensation structure, degree of hierarchy, compensation mix, job security and seniority (Lawler, 2000). All these different features of the compensation system are included in the compensation strategy. As among business strategies, the most important feature of a compensation strategy is to explain the way how to get to a specific objective. Furthermore, without a compensation strategy it cannot be assured that employees will be compensated at fair rates of pay.