Matching compensation and organizational strategies

Abstract

This study examines the impact of organizational strategies (at both the corporate and business unit level) on pay strategies, and their interactive influence on the effectiveness of the compensation system. The empirical findings are based on the survey responses of 192 human resource management executives in business units of large manufacturing firms. Corporate strategy was a significant predictor of pay package design, pay level relative to the market, and pay administration policies. Business unit strategy was a significant predictor of pay package design and pay level relative to the market. The findings are supportive of congruency notions which suggest that the effectiveness of the compensation system is partly a function of the fit between pay strategies and organizational strategies.