The model presented in this chapter provides a structure for understanding compensation systems. The three main components of the

model are the compensation objectives, the policy decisions that guide how the objectives are going to be achieved, and the techniques that

make up the pay system and link the policies to the objectives. The following sections of the book examine each of the four policy

decisions$-$internal alignment, external competitiveness, employee performance, and management$-$as well as the techniques, new

directions, and related research.

Two questions should constantly be in the minds of managers and readers of this text. First, Why do it this way? There is rarely one correct

way to design a system or pay an individual. Organizations, people, and circumstances are too varied. But a well$-$trained manager can select

or design a suitable approach. Second, So what? What does this technique do for us$?$ How does it help achieve our goals? If good answers

to the $"$So What?" question are not apparent, there is no point to the technique. Adapting the pay system to meet the needs of the

employees and helping to achieve the goals of the organization is what this book is all about.

The basic premise of this book is that compensation systems do have a profound impact. Yet, too often traditional pay systems seem to

have been designed in response to some historical but long$-$forgotten problem. The practices continue, but the logic underlying them is not

always clear or even relevant. Hopefully, the next generation of pay systems will be more flexible$-$designed to achieve specific objectives

under changing conditions.

$******$Review Questions

What are the four policy issues in the pay model? What purposes do the objectives in the pay model serve?