Question

Explain two possible limitations associated with establishing internally consistent compensation systems.

Based off of Strategic Compensation, Martocchio

Answer 1

The internal compensation system is used to compare the value of every job within the organization, and helpful to leads us to develop a hierarchy based upon the job comparison against each job within the company.

There are two possible limitations associated with establishing internally:

1. It reduces the flexibility of the organization to respond to changes in responding to competitors pay practices.

Because job evaluation provides the relevant job worth within the organization and responds to the competition may require engagement in employees' duties that extend their described job when competition pressure increases.

2. Resultant bureaucracy because companies that establish their job hierarchies tend to create defined jobs, increasing the number of jobs and staffing levels within the organization. This structure increases the burden of compensation. Employees compensation depends on their work performance, their skills, their qualification. Employing many employees' altitude of small jobs contributes to the sustainable fixed cost for employee benefits and leads to enhanced competitive advantage.

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