Aligning Compensation Systems With Organization Culture

• Published in: Compensation and Benefits Review Vol. 46; no. 2; pp. 103 - 115
• Main Author: Madhani, Pankaj M.
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01-03-2014; SAGE PUBLICATIONS, INC
• Subjects: Assets; Compensation; Compensation costs; Competitive advantage; Corporate culture; Cost; Culture; Impact analysis; Studies; positive culture; negative culture; organization culture; operating leverage; compensation; fixed pay; variable pay
• ISSN: 0886-3687; 1552-3837
• DOI: 10.1177/0886368714541913

Organization culture and compensation system design function as complementary elements in achieving the strategic goals of the organization. When compensation systems are not aligned with organization culture, it causes many unintended consequences. This research study looks at the impact of organization culture on compensation and vice versa. Various frameworks provided in this article will help managers in effectively managing compensation costs as well as enhancing performance of the organizations. The organization culture can be shaped by the type of compensation system used and the kinds of behaviors and outcomes the organization chooses to reward and punish. When culture and compensation structure (fixed pay vs. variable pay) are synchronized, the culture acts as an asset and generates competitive advantage. Depending on how compensation system is designed, developed, communicated and managed, it can positively or negatively influence an organization’s culture. This research identifies compensation strategies for various types of organization culture and suggests the best-case scenario for optimal performance.