The Strategic Role of Compensation

Abstract

Many social scientists and observers of the American scene have recognized for some time that the U.S. has become an "instrumental" culture. It is crucial in such a culture for employees to be convinced that their effort leads to performance and performance leads to valued rewards. Therefore, instituting performance-based pay systems in U.S. organizations is imperative. However, the relationship between performance and rewards is quite complex. Different competitive strategies supported by appropriate organizational cultures intervene between organizational goal attainment and the compensation mix that the organization selects. In other words, there needs to be congruence between goals that organizations seek, strategies that are most likely to attain these goals, cultures that support these strategies, and reward systems that elicit and maintain behaviors that are consonant with the appropriate competitive strategy and its supporting culture. In this manuscript, the author attempts to create just such a congruence.