The Impact and Effect of Compensation Within an Organization. Essay Sample

Published: 2023-08-21
The Impact and Effect of Compensation Within an Organization. Essay Sample
Type of paper:  Essay
Categories:  Human resources Motivation Organizational culture
Pages: 5
Wordcount: 1277 words
11 min read

Compensation within an organization serves an essential purpose of reimbursing employees for the time, effort, and energy they spend while rendering services and ensuring that a company excels. Compensation encompasses fixed and variable pay that is tied to performance levels. It includes financial and non-financial outward rewards offered by an employer to employees for their time, effort, and skill that they make available when fulfilling their job requirements aimed at achieving a company’s objectives (Madhani, 2019). Compensation is vital because it allows employers and employees to attract, retain, and maintain talented employees. Compensation is the main reason why people work, and it plays a massive role in determining job satisfaction. With the rising living costs, it makes it essential for companies to consider increasing employee compensation because if employees feel underpaid, they are likely to be dissatisfied with their jobs (Conroy, 2019). However, companies that pay employees based on their expectations and the services they render have employees who are happy and excited to work in a particular organization. Compensation, therefore, has a huge effect and impact on an organization.

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How Organizations Determine the Relative Importance of Compensable Factors

Compensable factors comprise the skills, qualifications, working conditions, years of experience, and certifications, among others. Companies use job evaluation methods to determine the relative importance of compensable factors. Job evaluation is a process used to compare a job against other jobs within an organization to determine the most suitable pay. This process is carried out by a knowledgeable team, mostly senior employees who comprehend the functions of the majority of organizations' jobs. Objectivity is maintained by hiring a consultant to help in the compensation planning and design process. Internal job evaluations are either quantitative or qualitative. Quantitative methods include factor comparison, point factor, and custom factor comparison. The point factor breaks down jobs into compensable factors, as identified during a job analysis (Conroy, 2019). These points are allocated to the factors, and a pay structure is created for the job. Employing the systems for internal equity helps an organization to quantify the total point for every unique job and, therefore, its true value. Qualitative factors comprise job ranking and job classification. Job classification involves writing job descriptions of every class of jobs and placing them into a grade that best matches the class description because job classification is subjective and depends on the evaluator, some companies use market pricing to determine the compensable factors.

Market pricing allows companies to establish suitable competitive pay plans and assign costs sensibly. The source of this information is third-party compensation surveys. Market pricing stresses on external competitiveness. However, often companies have insufficient or unreliable market data for all jobs (Conroy, 2019).

Internal job evaluation has to ensure there is internal equity. There is a need to comply with federal laws and regulations, such as the Equal Pay Act. The pay structure has to be rational and consistent based on the value of the job to a company in regard to complexity and importance (Madhani, 2019).

Companies must have a role in ensuring employees understand how pay and benefits are determined in an organization by involving them in job evaluations. On the one hand, employees who feel underpaid are mostly motivated and unsatisfied. They also continue searching for companies that pay better. On the other hand, employees who feel that they are paid fairly for their time, effort, and commitment to an organization are likely to be happy and motivated to work. When determining the compensable factors, organizations must ensure that the process is transparent and clear to allow employees to feel satisfied with the process.

How Compensation Strategies Tie Into Underlying Corporate Values

Corporate values are enshrined in a company’s culture. An organizational culture specifies the expectations, philosophy, experiences, and values that hold an organization together. Organizational culture is reinforced using positive feedback and through a set of core beliefs and assumptions that are taken for granted by an organization (Madhani, 2019). Corporate culture guides people on what they are expected to do in different circumstances. An organization can tie compensation strategies to underlying corporate values. Compensation and benefits have the role of attracting, retaining, and motivating employees. Companies use compensation and benefits to attract people who embrace their culture and values.

Compensation and benefits programs are also aligned with an organization's values from the beginning. For example, organizations that benefit from retirement can reveal the culture of an organization. A benefit retirement that is traditionally defined can be viewed as paternalistic, while a contribution-based approach can reflect an empowering organization and culture (Madhani, 2019). Further, health plans and leave benefits that indicate appreciation and value can express an organization's commitment to work-life balance. Additionally, flexible time-off programs, as well as flexible work arrangements, can be used by an organization to show employees that the organization puts the responsibility of career advancement and growth on an individual (Conroy, 2019).

A company also retains employees who perform exceptionally and share the organization's culture and values. High performance is not adequate because an employee can be productive but divisive. Further, some employees who do not collaborate in an organization that values collaboration can be seen as less attractive. An organization can use compensation and benefits to reward those employees that uphold and promote its culture.

Compensation and benefits are also employed to motivate employees. Incentive plans can be used to show employees acceptable levels of risk-taking, the value of performance, and accountability. Compensation can, therefore, be used to reinforce behavior and accordingly align in it to an organization's culture and values. The alignment causes employees to understand what an organization expects, which helps to motivate them, thereby improving the relationship between employees and the company, which results in high performance (Madhani, 2019). Compensation investments can be made to support a company’s culture and business strategy. For instance, a company that appreciates innovation need to align compensation and benefits around this objective. An organization that seeks to build its sales volume has to structure its compensation and benefits around commission programs. An organization that seeks to promote quality and efficiency, employee pay ought to support such initiatives.

An Example Which Demonstrates How an Organization’s Compensation and Benefits Programs Have Been Utilized to Obtain Corporate Strategic Goals

Apple Inc. is an organization whose compensation is based on performance. Employees are paid on a timely basis and the value they bring to the organization. Apple Inc. values innovation and creativity, and its pay is aligned to achieving these goals. In regards to executive compensation plans, executives who bring more success to the organization are the ones who are paid most (Conroy, 2019). This compensation strategy motivates employees to work hard and make sure that their impact is felt in the organization so that they can receive high compensation.


Compensation is an essential factor in the success of an organization. Companies use it to reward employees for the time, effort, and energy they expend while fulfilling their job responsibilities. Compensation can help an organization meet its strategic goals and also promote its value and culture. The compensable factors depend on the value of each job to an organization. It also depends on the complexity of the job. Job analysis is used in determining compensable factors. Market pricing can also be used by organizations. Compensation can, therefore, have a huge effect and impact on an organization.


Conroy, S. A. (2019). Setting base pay rates: Integrating compensation practice with human capital value creation and value capture. In the handbook of research on strategic human capital resources. Edward Elgar Publishing.

Madhani, P. M. (2019). How Compensation and Benefits Build and Sustain a Customer-Focused Culture. WorldatWork Total Rewards Association.

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