If position classification and motivation define the individual–organization relationship, then compensation quite literally quantifies it. Earnings affect a person—not only economically but also socially and psychologically—because they are a concrete indicator of employee value to the institution, purchasing power, social prestige, and, sadly, perhaps even self-worth.

Payroll expenses, likewise, represent a substantial investment on the part of the organization; they often constitute the majority of its budget. In the U.S. Department of Defense and the U.S. Postal Service, for example—and in most other agencies irrespective of jurisdiction—labor costs often amount to more than 80% of outlays. Accordingly, a compensation system should aim to align individual and organizational objectives, an ideal that may be difficult to achieve when many elected officials—with backgrounds in insurance agencies, real estate offices, law firms, and other small businesses—have little experience in large public organizations.

Nevertheless, dilemmas in managing compensation are of paramount importance. Trends in performance accountability and staff reduction suggest that supervisors and employees will determine resolution of these issues, with human resource management experts serving as consultants, not controllers. It will no longer do to blame controversial decisions on the personnel office.

Organizations have a right to expect staff to be as productive as possible, and individuals have the right to be fairly compensated. Thus, a value-added remuneration system should optimize the balance between institutional constraints and personal expectations by creating value for both the organization and its members. Program goals include attracting new workers, rewarding and retaining existing ones, providing equity, controlling budgets, and supporting the culture that the agency seeks to cultivate. The design and maintenance of a compensation system constitute a complex and prominent function in an organization; other human resource functions are important to some employees, but money is crucial to virtually everyone.

An organization confronts two types of decisions in the management of compensation to achieve this goal: pay level and pay adjustments. Decisions about levels of pay are largely consequences of philosophy, market, and job evaluation, whereas decisions about pay adjustments emphasize employees’ specific placement in the salary structure. Taken together, these judgments should represent the greater good by aligning the interests of the public and its servants.

It is important to keep in mind that there are no absolute measures of job value. For things like temperature and weight, instruments are both reliable and valid. Job value is at best a relative or comparative measure. Instead, what exists in many organizations are inconsistent mixes of fair-pay criteria. A common denominator and underlying assumption shared by all forms of equity, however, is that they implicitly hold a time clock model of work.

Organizations can lead, match, or lag behind what other employers offer employees. In sharp contrast to the strategies of governments in some other advanced democracies, the approach in U.S. governments has generally been to limit pools of job candidates to those prepared to accept that salaries in the public sector are frequently not competitive. Compensation is not seen as a strategic tool to achieve organizational objectives but rather as a cost to be managed and contained.