How Does an Organization’s Compensation System and Its Culture Affect Each Other?

[We’re pleased  to welcome Pankaj M. Madhani of ICFAI Business School (IBS) in India. Dr. Madhani is the author of “Aligning Compensation Systems With Organization Culture,” which appeared in the most recent issue of Compensation and Benefits Review.]

Organization culture has been identified as an intangible phenomenon— pervasive but difficult to manage. Culture is important because it reinforces the values in the organization, which in turn shapes employee behavior. A key CBR_42_1_72ppiRGB_powerpointcontributor to culture is the compensation system, which reflects the values of the organization, desired actions and emphasis placed on desired results. Depending on how the compensation system is designed, installed, communicated and managed, it can support, hamper or change the direction of an organization’s culture. Organizations have not thoroughly studied and linked organization culture and compensation system as the culture frequently is not defined and discussed, and often organizations are unsure of the messages that specific compensation design alternatives convey to employees.

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.

Depending on overall management of compensation system, it can positively or negatively influence an organization’s culture. Organization culture and compensation system design function as complementary elements in achieving the strategic goals of the organization. This research identifies compensation strategies for various types of organization culture and suggests the best-case scenario for optimal performance.

You can read “Aligning Compensation Systems With Organization Culture” from Compensation and Benefits Review for free by clicking here. Want to have notifications of all the latest research from Compensation and Benefits Review sent directly to your inbox? Click here to sign up for e-alerts!

857da02a30227a2416653fe028aa8c16Pankaj M. Madhani earned a master’s degree in business administration from Northern Illinois University, a master’s degree in computer science from Illinois Institute of Technology in Chicago and a PhD in strategic management from CEPT University. He has more than 27 years of corporate and academic experience in India and the United States. During his tenure with corporate experience, he was recognized with the Outstanding Young Managers Award. He is now working as an associate professor at ICFAI Business School (IBS) where he received the Best Teacher Award from IBS Alumni Federation. He is also the recipient of the Best Mentor Award. He has published various management books and more than 200 book chapters and research articles in several academic and practitioner journals such as WorldatWork Journal and The European Business Review. He is a frequent contributor to Compensation & Benefits Review and has published 12 articles on sales compensation. His main research interests include sales force compensation, corporate governance and business strategy.

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