Compensation Systems and Company’s Competitive Advantage

Subject: Management
Pages: 1
Words: 353
Reading time:
2 min
Study level: Master

Can Companies Easily Develop Compensation Systems that Are Both Internally Consistent and Market Competitive? What Are Some of the Challenges to This Goal?

It goes without saying that a compensation system has an immeasurably significant impact on the company’s growth and development. Compensation may be defined as employees’ rewards earned in return for their labor (Child Care Human Resources Sector Council, n.d.). Thus, properly constructed compensation strategies may motivate and retain talented workers and lead to the enhancement of their job performance and the company’s high profits. Internally consistent compensation systems focus on jobs’ internal comparison through their description to determine each job’s value in the company against other jobs within it (EL-Hajji, 2011). In turn, market competitive systems emphasize “the importance of harmony of the wages and salaries paid by an organization in relation to those paid by other organizations in the same field and community” (EL-Hajji, 2011, p. 34).

As a matter of fact, employee satisfaction is determined by both internal and external consistency along with fair payment (Industry Week, 2018). It is possible to develop compensation systems that will be both internally consistent and market competitive, however, it is frequently challenging. A company that decides to implement both internally and externally consistent compensation system will be forced to consider a greater range of multiple factors, including not only employees’ performance and volumes of their work on the basis of their positions, but competitors’ analysis, the market’s situation, and other political, economic, business, social, and technological factors.

Which Do You Believe Is Most Important for a Company’s Competitive Advantage: Internal Consistency or Market Competitiveness?

Market competitiveness is the compensation system’s component that directly affects a company’s competitive advantage. It concerns market competitors’ experience to retain talented and qualified workers in the organization. In addition, market competitiveness requires the comprehensive conduct of foreign demand and labor market assessments through information gathering strategic alliances, and competitors’ monitoring that are essential for marketing competitiveness (Martocchio, 2012). However, the organization’s internal consistency has an indirect influence on competitiveness as well as motivated employees improve the company’s performance making it successful and competitive in the market.


Child Care Human Resources Sector Council. (n.d.). Compensation systems: Design and goals. Web.

EL-Hajji, M. A. (2011). Wage consistency in the context of job evaluation: An analytical view. International Journal of Business and Social Science, 2(10), 31-37.

Industry Week. (2018). Trying to ensure fair pay, employers are changing policies. Cleveland, OH: Informa.

Martocchio, J. J. (2012). Strategic compensation: A human resource management approach (7th ed.). London, England: Pearson Learning Solutions.