Can companies easily develop compensation systems that are both internally consistent and market competitive? What are 2-3 challenges to this goal?
It is important for companies to develop not only a compensation program that is internally consistent but that is also market competitive. Internally consistent compensation systems are based on the value that each job within the company has. The jobs that require more from employees get paid more and jobs that are less complex and require less receive lower pay. In order for a company to develop an internally consistent compensation program they have to have a consistent job structure, which is typically accomplished through job analysis and job evaluations to identify job content and allow them to implement a consistent compensation system. It can be difficult for some companies to utilize both an internally consistent compensation system and maintain market competitiveness because it can cause a company to lose their flexibility. This can be a challenge because when there are changes in the market and competitors’ pay practices it is difficult for them to respond and stay competitive. If other companies begin to offer more compensation then it can cause employees to leave. Another challenge is that when creating an internally consistent compensation structure it creates a hierarchy in the company with strict expectations for each job. When other companies increase their pay or compensation it may be difficult for a company to be able to afford increases in pay for all the jobs because they have such a consistent and strict structure. It can become increasingly difficult to keep up with the constant changes in the market and amongst competing companies.
