Discuss the strategic decisions that guide the design of compensation practices for a company.  8. Explain the difference between an entitlement philosophy and a performance philosophy

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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7. Discuss the strategic decisions that guide the design of compensation practices for a company.

 8. Explain the difference between an entitlement philosophy and a performance philosophy.

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Compensation Strategy

Every organization has different operational levels and each level has various employees working for the organization. It is very important for an organization to have an effective compensation strategy to motivate the existing employees and attract new ones. A compensation strategy defines how an organization manages employees' salaries and benefits.

Strategic decisions that guide the design of compensation practices
  • Allocation of Budget -  Budget allocation helps to determine what percent of the total compensation budget will be spent on employees' salaries and on other benefits. This is also helpful in controlling the costs. Hence it guides the design of compensation practices.
  • Salary ranges - An organization should have a competitive employee pay, therefore it is required to develop salary ranges to ensure it is competitive with other organizations.
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