Factors that shape internal structure of employee's compensation

In his essay, Milkovich describes some of the aspects that contribute to the formation of an internal structure of employee compensation.

He emphasizes the following factors in his books:

When compared to competitive business partners, large corporations are entitled to provide big compensations to their employees, but smaller organizations may retain their pay scale up to the level of competing firms or sometimes pay below industry standards (Coomer, 2010).

The ability to pay so focuses on a company's ability to reward their employees on a consistent basis (Milkovich, Newma&Gerhart, 2011).

Business strategy

Employees' compensation can also be affected by the organization's policies (Milkovich, Newma&Gerhart, 2011). In the situation that the company recruits only skilled labors to outshine its competitors, the company will automatically have to pay high compensations than the others (Yang et al., 2009). But in a case when a corporation wants to go smooth and is managing with the available workers, the company will give its employees less pay compared to what other employees in another similar organization is paid.

Job evaluation and performance appraisal

Here, Milkovich argues that since different employees have satisfactory pay for various jobs, the performance appraisal will after those enable the employees to be able to earn extra by their performance


An employee can influence the compensation in the following ways.

Performance: A good performance fetches a better pay for the workers, and therefore with the increased compensation the employees get motivated and perform their job more efficiently (Yang et al., 2009).

Experience: As the employees continue to work in an individual organization, they become more experienced and therefore should get an increased pay for their experience (Milkovich, Newma&Gerhart, 2011).

Potential: Milkovich argues that the potential of an employee is worthless when it gets unnoticed in the organization by the employer. Therefore employees with better potential in an organization do get well paid than those with low potential.

The reason why these factors are/not connected and are interdependent.

Based on the theories, the employee's compensation factors are interrelated and connected. For the satisfaction of one factor, the other factor must apply (Milkovich, Newma&Gerhart, 2011). For instance for the organization to pay their employees on a regular basis, the business must not only be recruiting skilled workers, but the employee's job must also be evaluated, and other factors that surround employees like a level of performance, experience, and potential must be considered by the employer (Yang et al., 2009). The theories explain the relationships between the employee's compensation factors to show the usefulness of employees in being all round in their duties and not to neglect on any side of the work.

Impacts of the compensation factors connection on the organization culture.

Every single organization has their own uniqueness on dealing with different factors (Coomer, 2010). In this case, sometimes an organization may decide to compensate its employees on regular basis while other organizations may partially or completely fail to compensate their employees (Yang et al., 2009). When an organization fails to compensate its employee, the employee will feel frustrated and demoralized by the organization therefore he may decide to be sluggish in his work. When an employee's fail to deliver well in organization, the organization will automatically record losses and this can lead to the closure of the organization. In this regard, both sides must be dealt with in order to ensure that there is smooth running of the business. It will also improve the worker and the employer relationship in the organization.


Coomer, N. M. (2010). National Inventory of Workers' Compensation Fee Schedules for Hospitals and Ambulatory Surgical Centers. Workers Compensation Research Institute.

Milkovich, G.T., Newman, J.M., &Gerhart, B. (2011).Compensation (10th Edition).

Yang, R., Coomer, N., Landes, S., Radeva, E., Telles, C., & Tanabe, R. (2009).Monitoring the impact of 2003 reforms on Florida workers' compensation system: CompScope™ benchmarks.

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