Compensation Strategy Of Employees

A compensation strategy motivates employees to attain goals and objectives of the organization. It is one of the main strategies in human resource function influencing the organizational costs. It sets the place of an organization in the competitive job market and the top managements, is required to support it strongly because, it may limit the operations of the company if disagreements arise. The main objective of a compensation strategy is to reward the employee towards achieving the desired results. Compensation may be non-monetary or monetary. Non-monetary compensation may include proper treatment, promotions, and provision of a safe work environment. The monetary are: holidays, medical benefits, salary, commissions, bonus and pensions. A good compensation strategy assists in retaining and attracting a competent workforce (Strategic Human Resource, 2008, par 1-12).

Development of compensation policies for the company may be affected by various internal and external factors. One of the external factors is the culture of the people. A benefit may be highly valued in a certain country or tribe but worthless for another country. Depending on the beliefs, values and attitudes of the people, value of a benefit may differ. It is important to consider the culture of the employees when coming up with a compensation strategy. This is because a strategy might be formulated making the company incur high costs yet, it is rendered worthless. The HR department should engross the locals so that they understand the valued benefit and compensation strategies (Sanjeev, 2009, p. 9).

Another external factor is economic factors that are different for each country. The variances are in terms of wealth distribution, political influence and unpredictable events like inflation, interest rates and currency. It is necessary to consider the various economical factors because a compensation strategy will be less effective if it does not allow for inflation or deflation. In addition, unpredictable factors could affect the strategies for compensation if not accounted for. It is essential to have contingent plans to counter the risks associated with likely economical changes. Also, carry out a risk analysis of certain factors and make allowances for inflation and interest rate changes. The company may support the local developmental projects to create a good impression to the locals (Sanjeey, 2009, p.9).

Taxation is a crucial factor that might affect a compensation plan. Taxes levied vary from one country to another and, for some certain benefits are taxable. When compensating employees, whether it is monetary or non-monetary, it is essential to determine the tax implications on the benefits. A company may involve experts in compensation practices and benefits. This factor is crucial because people will desire a certain benefit depending on the tax imposed on it (Sanjeey, 2009, p. 9).

The bargaining power of employees unions is necessary and mandates of the government ought to be considered. The minimum wage imposed should be considered and the necessary pensions offered. The competitive labor market should be taken into account because if better compensation schemes are offered elsewhere, the employees will desire to join those organisations.

Besides the external factors, there are also internal factor affecting compensation strategies. One of them is organizational interdependence where management relies more on the functionally structured businesses and interdependent business units. They tend to use the strategies of others that might reduce the motivational aspect of the reward program while encouraging teamwork. Individual targets may be developed which increase motivational value but, lessen the age collaboration (Fred, 1985, p.191).

The management control factor also affects the compensation strategies due to performance evaluation. The investment decisions made are important because of the profits and revenues expected. These decisions are very crucial because the funds to offer as benefits will be generated from the profits made. If the expected profits targeted are not achieved, it definitely affects the benefits and the employees may get demoralized (Fred, 1985, p.191).

Another crucial aspect is the ability of the organization. When the HR departments are coming up with strategies, it is important that they consider whether the organization has the capability to support them. Compensation schemes may be developed based on certain projections that become hard to achieve. This will affect the schemes because the company will not be in a position to implement them and thus, they will be rendered ineffective. Therefore, the management should come up with schemes that the organization can support in terms of funds or any other aspect.

Wal-mart is one of the largest retailing companies in United States and the largest company in world’s history. Its business model is still a mystery and it uses the strategy of hiding its weak points. The management team works hard to make their organization stand out and ensure that they distinguish the factors that will meet customers’ expectations. It has a human resource that is well equipped both technologically and professionally. It operates on the strategy of a low price where it purchases its products at a low price and, sells them to customers on a low price building enough confidence. It has well planned strategies that are properly implemented and this builds the customers confidence since, it sell under its legal brand name. This strategy has enabled Wal-mart open over 4000 stores in the US and other outlets through mergers and acquisition (Gopal, 2009 par.6-10). Its goal s are aggressive, set for the entire team which includes average and above average performers and it haw ways of dealing with non-performers. It hires people with a positive attitude and aims at eliminating the negative attitude among its staff members. It hires the best individuals, trains them well and provides the best working environment. It practices leadership that is emphatic versus sympathetic and promotions are from within (Michael, 2009 par. 5).

Wal-mart should adopt compensation strategies to ensure that is competitive enough in terms of workforce satisfaction and retention. They could offer benefit schemes to their employees that are either monetary or non-monetary. Incentives will increase the morale of employees and they develop a positive attitude while undertaking their responsibilities. Considering its reputation, Wal-mart should hire the best employees educationally and well trained. This might increase the profits providing the necessary funds for implementation of the incentive schemes. This will enable the company attract and maintain the best staff thus, increasing its productivity and placing it in a competitive place with other large companies.

Therefore, it is necessary that all companies come up with compensation strategies and incorporate them in their human resources manuals. In addition, the management should ensure proper implementation of these strategies so that employees are motivated and properly rewarded for their hard work. This will reduce the turnover of employees in organisations thus, reducing the costs of interviews and training.


Fred, K. (1985). Executive Compensation: a strategic guides for the 1990s. USA: HarperCollins.

Gopal, P. (2009). Strategic Management: A Case Study of Wal-Mart Inc. Web.

Michael, B, (2009). Anchor Your Business in Wal-Mart’s Best practices. Web.

Sanjeev, H. (2009). Factors affecting Global compensation and benefits. HR Articles. 19

Strategic Human Resource. (2008). Use Compensation Strategy as a Tool to Motivate Your People. Web.

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