Answered: Discuss the strategic decisions that…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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7. Discuss the strategic decisions that guide the design of compensation practices for a company.

8. Explain the difference between an entitlement philosophy and a performance philosophy.

Expert Solution

Compensation Strategy

Every organization has different operational levels and each level has various employees working for the organization. It is very important for an organization to have an effective compensation strategy to motivate the existing employees and attract new ones. A compensation strategy defines how an organization manages employees' salaries and benefits.

Strategic decisions that guide the design of compensation practices

Allocation of Budget - Budget allocation helps to determine what percent of the total compensation budget will be spent on employees' salaries and on other benefits. This is also helpful in controlling the costs. Hence it guides the design of compensation practices.
Salary ranges - An organization should have a competitive employee pay, therefore it is required to develop salary ranges to ensure it is competitive with other organizations.

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