Value-Chain Compensaion

Abstract

To what extent do compensation programs create value for both the organization and employees? The authors argue that the "value chain" in production processes and in tracking the economics of organizational performance has its counterpart in compensation programs. Value-chain compensation balances four major compensation objectives: (1) to sustain membership (i.e., retention); (2) to motivate performance; (3) to build employee commitment; and (4) to encourage growth in employees' skills. The authors maintain that the reason many heralded compensation ideas have met with, at best, mixed results, is that their creators failed to consider the principles of value creation.