Proceedings of the 7th International Conference on Economic Management and Green Development

DOI: 10.54254/2754-1169/31/20231490

Study on the Impact of Employee Compensation and Benefits

System on Employee Innovation and Optimization Strategy
Haorui Cui1,a,*
1
Chengdu Foreign Language School, Gaoxin, Chengdu, 610000, China
a. [email protected]
*corresponding author

Abstract: The most direct and practical of the many incentive programs is compensation
incentive, particularly total compensation incentive, which also has a high operability.
Nevertheless, it is also constrained by the enterprise's overall viability and the cost of its
human resources. More remuneration satisfaction does not always translate into better
business performance; further research is needed to understand how it works. On the basis of
an analysis of local and foreign research data, this paper investigates the connection between
employee innovation performance and remuneration satisfaction. It also introduces work
engagement as a mediating variable along the path of compensation satisfaction - work
engagement - innovation performance. It has been established via empirical study and data
analysis that employees' contentment with their salary and related factors can positively
impact the link between that relationship and their innovation performance. It demonstrates
that following the introduction of the new work engagement perspective, compensation
management satisfaction affects innovation performance indirectly through the influence of
work engagement. Through the in-depth exploration of its influence mechanism, it offers
some guidance for the related enterprises to design the compensation system scientifically to
motivate the innovation ability of employees and complements and improves the related
theory.

Keywords: employee innovation, optimization strategy, employee compensation

1. Introduction
1.1. Research Background
As a critical component of national innovation, enterprise plays an essential role in innovation.
Continuous innovation and innovation are the foundation of a company's existence. Employee
innovation, as a practical subject of enterprise innovation, is the source and primary driving force of
enterprise innovation. Therefore, improving employee innovation performance is an important
problem that enterprises face. However, most Chinese enterprises do not manage their staff in a
standardized way, and the phenomenon of dispersion, disorder, and poverty is still present. Firstly,
managers do not understand the innovation features of staff and innovation perfor-mance, which leads
to their development and management being restricted to im-proving the working environment and
treating them poorly. Secondly, they do not pay sufficient attention to the staff, and the motivation
mechanism provided is inad-equate and imperfect; thirdly, they do not understand the innovative
© 2023 The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(https://creativecommons.org/licenses/by/4.0/).

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features of the team and the factors affecting innovation performance. Third, enterprises need to learn
the internal and external needs of staff and often apply standard staff manage-ment methods to
manage their innovative performance, which leads to bad perfor-mance.
According to Maslow's hierarchy of needs theory, when the needs at lower levels are satisfied,
people's needs are often translated to higher levels. As for those at the forefront of technological
innovation, their social, organizational, and professional development needs will become more
prominent after satisfying their low level of material reward. Therefore, it is necessary to study how
to enhance the innovation performance of staff.
Employees' innovative research activities not only enable firms to identify their weaknesses and
gaps but also improve their capacity to apply external knowledge by accumulating and absorbing new
knowledge, thereby increasing their core capacity for technological innovation by using and
translating new knowledge into commer-cial value, and developing new products for improving
performance and economic growth. Therefore, the motivation of employees is essential in this
process. Com-pensation incentive is the most direct and effective one, and it is highly operational.
However, it is restricted by the overall strength of the enterprise and other factors such as human
resource cost. Higher compensation satisfaction may not improve firm performance, so the
mechanism of their influence needs to be examined.
With a focus on firms in Wuhan, Hubei Province, this study covers domestic and international
research achievements on pay management and innovation perfor-mance and investigates the link
between wage satisfaction and the success of new ideas. Employee remuneration satisfaction and
innovation performance are also examined, as is employee participation as a proxy. By exploring the
impact mecha-nism, this paper can provide some reference for China's enterprises to promote inno-
vation by adjusting the compensation system and complementing and perfecting the relevant theories.
1.2. Literature Review
1.2.1. Relevant Connotations of Innovation Performance
Most scholars have studied innovation performance from the organizational level, and the research
objects are mainly focused on science and technology workers. Along with the development of the
times, some researchers have begun to research the innovation performance of individual employees,
which has broadened the scope of research. This article examines innovation performance to
determine how wages affect employee happiness.
There is no unified standard in the academic mainstream about innovation per-formance; scholars
have elaborated on it from different angles by their research interests. Qiao & Zhang divide innovation
into product/technology innovation and impact factor. [1]. According to Yang, Qing & Yuan,
innovation performance refers to improving organizational performance by innovating products,
processes, services, or processes [2]. According to Chen, innovation performance is a process where
knowledge is shared and transmitted to gain an advantageous position, continuously advancing and
acquiring knowledge [3]. Generally speaking, innovation performance can be classified into three
categories: process theory, outcome theory, and synthetic theory, with different emphases.
(1) Process Theory: Those who hold the Process Theory believe that innovation performance is a
process that includes the entire process of innovation from its creation to its realization. Guo thinks
that innovation performance is a dynamic process of "producing," - "promoting," - "realizing." [4].
Lina Liang and Guoqiang Zhang believe that innovation performance is when employees understand
and grasp the meaning and content of innovation and acquire and apply innovative knowledge [5].
(2) Outcome Theory: Those with an outcome-based view think that the achievement of innovation
is a result and that the process does not matter, but the result is the focus of attention [6]. Bowie

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believes that innovation performance results from employees putting innovative ideas into practice
to achieve innovation goals [7].
(3) Mumford argues that innovation performance encompasses both the outcome of innovation
and the entire process by which it is produced [8]. Cao and Zhong argue that the final results obtained
at each phase are valued from creating innovative ideas through changing working methods and
processes to presenting creative outcomes [9].
Based on the literature review, this paper agrees with the Synthesis Theory, which defines
employee innovation performance as achieving innovative outcomes by adopting creative behaviours
and synthesizing the resulting products. It includes both the process and the result of innovation.
1.2.2. Factors Influencing Innovation Performance
The following are the two primary foci of research into the factors that influence the success of
innovations.
(1) Intrinsic individual factors: Prajogo& Ahmed found that positive and positive personal emotion
can improve employees' innovation performance, suggesting that an individual employee's inner state
and attitude can influence innovation performance [13]. Cordero found that staff's knowledge base
and intelligence level influence innovation performance [14]. Laursen& Salter have combined these
two perspectives and concluded that an employee's inner state, attitude, unique knowledge base, and
intellectual level could influence innovation performance [15].
(2) Organizational context factors: Lundvall& Nielsen found that the management of scientific
and technological talents should be changed from a controlling management model to a self-
management model and that firms could create a free and relaxed innovation environment and adopt
different incentives to encourage the self-improvement of science and technology talents, thereby
stimulating their willingness to innovate and dedicate their energies to innovation. This will enable
them to be innovative and committed to creative activities, significantly impacting staff innovation
[16]. Inauenand Schenker-Wicki found that the promotion of innovation by the organization is
conducive to better performance in innovation in all aspects of the individual and team [17]. Muller&
Peres found that leadership style can also influence employee innovation performance and that
transformational leadership positively affects employee innovation performance [18]. Gloet&
Terziovski argue that the focus on creating an innovative environment can greatly motivate
employees to innovate [19].
1.2.3. The Connotation of Compensation Satisfaction
Compensation satisfaction is a subjective assessment of the employee's performance and work after
they have finished their work and received the compensation. At present, there are three main
theoretical models of pay satisfaction research:
(1) The Equity Model of Adams focuses on the fairness and reasonableness of the distribution of
compensation for employees and the impact of distribution on employees [20]. His view is that two
factors influence whether an employee works actively, one is how much pay an employee receives,
and the other is whether the income that an employee gets is fair and equitable compared to other
employees of the same status. Research shows that employees care about their pay and reach it to
other people, and they feel that it's fair if they're paid the same amount as other workers in the same
situation. When the pay is higher than other workers, they will be happy and willing to work harder.
But when it's less than the pay of other workers, it's not fair, which gives rise to resentment and
negative work. The theoretical equation is: the paid one gets/the input one does = the salary one gets
compared to other objects/the input one does. When employees feel treated fairly, they will have
negative feelings and lower their efficiency, causing the equation to appear unbalanced. (1) Reducing

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their contributions and slacking off; (2) increasing the compensation they receive and demanding an
increase in salary; (3) reducing their self-esteem and feeling worthless; (4) changing their assessment
of other subjects and feeling that they are in a wrong position.
(2) The Discrepancy Model by Lawler and Locke believe that the satisfaction of employees'
compensation depends on two perceived differences, one is how much the employees think they
deserve (A), and the other is how many employees believe they are getting paid (B). If the difference
between the two perceptions is zero, the employee will be satisfied with the salary (A = B); if the
difference between the two perceptions is not zero, they will be dissatisfied (A ≠ B); if A > B, they
will not be satisfied with their salary and have negative feelings; if A < B, they will feel uneasy and
guilty.
(3) The Modified Gap Model Theory of Heneman and Schwab, in which Hoeneman and Schwab
argue that the study of employee satisfaction with pay tends to have little practical management value
and only focuses on the single income dimension [21]. Compensation satisfaction should be an
emulsifying concept consisting of four dimensions: wage level (direct wage income), compensatory
benefits (immediate wage income, direct wage, and non-wage benefits, e.g., insurance, holidays,
unconventional subsidies, etc.), wage growth (the amount and manner in which wages vary) and
compensation management (wage structure and allocation, etc.), and the well-known
PSQcompensation satisfaction questionnaire was designed based on its theme. This is also the form
used in the survey questionnaire of this study.
1.2.4. Dimensional Division of Salary Satisfaction
The development of the dimensional structure of salary satisfaction has generally gone through a
process of change from unidimensional to multidimensional. Because of the differences in research
angle and starting point, there is no uniform opinion about the division of dimensions, and there are
still many disputes. Still, it is considered that compensation satisfaction is a multi-dimension
structure.
In the early studies, compensation satisfaction was not independent. Still, it was only one
dimension of job satisfaction, and Mirowsky included compensation satisfaction as one of the five
dimensions [22].
Lawler argued that the difference between what employees expect to receive and what they receive
determines employees' satisfaction with their pay. Tanveer& Lodhi suggested that salary satisfaction
should include pride in salary level and the joy of employees with the salary management system
[23]. In addition, Lamand Miceli, in their research, confirmed Dyerand Theriault's theory that
compensation satisfaction is composed of two dimensions: the joy of the salary level and the
happiness of the compensation system. In their earlier study, Lee& Wilbur argued that compensation
satisfaction should be composed of five dimensions: compensation satisfaction, compensation benefit
satisfaction, salary growth satisfaction, and structure wage satisfaction [24]. But in their research,
they have finally combined the two dimensions of salary management and compensation in the five-
dimension structure of compensation satisfaction, which is commonly used today. Since then,
numerous studies have accepted and validated this view, such as Indrasari et al. have adopted it and
confirmed the four-dimensional structure of compensation satisfaction in their studies [25].
1.2.5. Factors Influencing Compensation Satisfaction
The Equity Model, put forward by Adams, is the key to the study of compensation satisfaction, which
argues that employees' perception of compensation satisfaction is achieved by comparing themselves
to other employees of the same type of work and by comparing them to their previous salary levels,
including horizontal and vertical comparisons. The comparison shall be carried out horizontally and

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vertically. Compare the principle: fair, as long as the employees believe it to be honest, they will be
satisfied with their pay, whereas unfair satisfaction will be less.
Moreover, several academics have considered the influence of each worker's various
characteristics. Still, the internal rules lead to different or even contradictory results depending on the
study's place, sector, and time, and there are considerable disputes. Other personal characteristics,
such as the sex of the employee, marital status, educational background, professional experience, and
the workplace, can affect compensation satisfaction, and the patterns of impact do vary.
Researchers think that women are more likely to be pleased with their wages than males because
they have lower income expectations due to their traditionally inferior status in the job. Regarding
marital status, some researchers think married workers are more satisfied with their pay than single
and divorced employees since they have a more stable and happy family life. Still, some academics
have the opposite view that married workers need wages more due to higher family costs and more
significant living pressure, making them more challenging to meet and generally less satisfied.
On the educational side, some scholars think that as the level of education of the workers increases,
they will evaluate themselves and society more accurately, they will have higher demands on the
return of their work, and they will have higher expectations and lower wage levels. But some scholars
think that with the increase in educational level, employees will attach more importance to the pay
structure and equity, and pay satisfaction will be improved as the academic level rises.
Regarding the length of service, some researchers believe that the more time an employee has been
in a society, the greater their sense of belonging to a community, and therefore the greater their
acceptance of the company's remuneration system. Furthermore, the longer they work, the higher
their status; the higher their benefits and wages, the higher their satisfaction rate. Workers of all
professions have several features that are harder to compare in the workplace. Still, it is generally
considered that the simpler the job, the greater the level of satisfaction; the principle is that, at the
same pay level, the simpler the job, the lower the employee's investment, and therefore, their pay
satisfaction will be higher.
1.3. Research Gap
(1) This study can reveal the mechanism of the effect of compensation satisfaction on innovation
performance through work engagement. Most of the current research literature studies the direct
influence of compensation satisfaction on innovation performance. While previous research has
focused on the direct effect of compensation satisfaction on innovation performance, the current study
takes a different tack by introducing the mediating variable of work engagement on the basis of this
direct relationship.
(2) Employees at corporations are the focus of this study. Findings from this paper's literature
review on the topic of compensation satisfaction and innovation performance indicate that the vast
majority of studies on the topic have focused on academic and research personnel in universities and
publicly funded research facilities, while only a small number have examined the experiences of
workers in private sector businesses. To a certain extent, the research on this topic has complemented
and enriched the research field of pay satisfaction and innovation performance.
(3) The innovation efficiency of an individual worker is the subject of this investigation. While
some studies on innovation performance have looked at organisational innovation as well, the vast
majority have focused on individual job performance. There is a dearth of in-depth research on the
topic of workers' innovative output. The research on individual innovation performance of employees
in this topic also helps to enrich the research theory of innovation performance.

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1.4. Research Framework

Based on reviewing and summarizing the results of salary management and innovation performance,
this thesis takes employees in Wuhan, Hubei Province, as the primary research object, makes a
questionnaire survey on employees, and puts forward a theoretical model of compensation
satisfaction and innovation performance with employee participation. The data was analyzed
bySPSSAU statistical analysis tool. Examining the intermediate link between employee participation
in compensation satisfaction and its dimensions and innovation performance, as well as identifying
the factors that contribute to compensation satisfaction and its dimensions, can help us establish and
verify the processes by which employees' compensation satisfaction is translated into innovation
performance.
2. Methods
2.1. Literature Study
This paper collected, screened, organized, and researched the relevant literature on salary satisfaction,
job participation, and innovation performance by accessing the China Journal Full Text Database,
China Dissertation Library, China Science & Technology Journal Library, etc.
2.2. Survey Research
In this paper, the questionnaire that satisfies the experiment needs is validated and selected using a
review of the relevant questionnaires and interviews based on the literature's classification, summary,
and integration. The samples are selected for data statistics, and relevant measurement indicators are
collected.
2.3. Empirical Study
Based on the questionnaire, the data were collected, and SPSSAU collected the data. Then, the
theoretical data model was built and validated through statistical, correlation, regression, etc. analysis.
2.4. Data analysis and hypothesis testing
2.4.1. Questionnaire processing
In order to ensure that the data obtained from the questionnaires met the requirements of the study, it
was necessary to eliminate the invalid questionnaires from the 285 questionnaires before conducting
the reliability and validity analysis of the questionnaires. According to the criterion that the selection
of questions is identical more than 70%, it was set as an invalid sample for elimination. The
questionnaires with obvious logical errors, such as those under 25 years of age, but with more than
10 years of relevant working experience, were manually screened out. Through strict screening, 206
valid questionnaires were retained.
2.4.2. Descriptive statistical analysis
(1) Descriptive statistical analysis of the sample

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Table 1: Results of frequency analysis of the sample.

Freque Percentage Cumulative
Name Options
ncy (%) percentage (%)
Male 159 77.18 77.18
Gender
Female 47 22.82 100.00
Married 162 78.64 78.64
Marital status Unmarried 34 16.50 95.15
Divorced 10 4.85 100.00
Specialized and below 89 43.20 43.20
Bachelor's degree 78 37.86 81.07
Education
Graduate student 38 18.45 99.51
PhD and above 1 0.49 100.00
Under 25 years old 13 6.31 6.31
25 - 35 years old 67 32.52 38.83
Age 35 years old-45 years old 58 28.16 66.99
45 years old - 55 years old 60 29.13 96.12
55 years old or above 8 3.88 100.00
Less than 1 year 11 5.34 5.34
1 year - 3 years 27 13.11 18.45
Years of
3 years - 5 years 20 9.71 28.16
relevant work
5 years-10 years 26 12.62 40.78
10 years or more 122 59.22 100
Information Technology,
12 5.83 5.83
Integrated Circuit
Aerospace 11 5.34 11.17
Materials, Energy 15 7.28 18.45
Work field
Biomedical, Medical Devices 13 6.31 24.76
Processing and manufacturing 91 44.17 68.93

Other industries 64 31.07 100

Less than 100,000 yuan/year 121 58.74 58.74
100,000 yuan-200,000
77 37.38 96.12
yuan/year
200,000 yuan-300,000
6 2.91 99.03
Income status yuan/year
300,000 Yuan-400,000
1 0.49 99.51
Yuan/year
More than 400,000 yuan/year 1 0.49 100
Total 206 100 100

From the table, it can be seen that, in terms of gender, there are relatively more "men" in the
sample, with a proportion of 77.18%. More than 70% of the sample chose "married" as their marital
status. More than 40% of the sample chose "college or below" in terms of education. And the
proportion of undergraduate samples is 37.86%. In terms of age, the highest percentage is 32.52% for
"25-35 years old". More than 50% of the sample chose "more than 10 years" for the number of years
of relevant work. 44.17% of the sample is "processing and manufacturing". The percentage of

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samples from other industries is 31.07%. 58.74% of the sample chose "less than $100,000/year". The
proportion of the sample of 100,000 - 200,000 Yuan/year is 37.38%.
(2) Descriptive statistical analysis of innovation performance
From the table, we can see that the overall level of innovation performance of R&D personnel is
3.592, which is slightly higher than the general level. The mean value of innovation behavior reached
3.831, and the median value was 4, which was higher than the level of innovation results. This
indicates that although employees have the awareness and behavior of active innovation, the
enterprise's ability to transform such behavior into innovation results is still lacking.
(3) Descriptive statistical analysis of salary satisfaction

Table 2: Descriptive Statistics of Innovation Performance.

Number Sample Minimum Maximum Average Standard
Name Median
of items size value value value deviation
Innovation
4 206 1.000 5.000 3.353 0.981 3.500
Achievement
Innovative
4 206 1.000 5.000 3.831 0.872 4.000
behavior
Avg 8 206 1.000 5.000 3.592 0.866 3.625

From the table, it can be seen that the overall satisfaction of the enterprise personnel with salary is
not high, only 3.085, and the salary satisfaction of the sample is between general and satisfactory,
very close to 3.000 (general). The mean value of compensation and benefit satisfaction is 3.124,
which is the highest value among the four dimensions of compensation satisfaction, indicating that
employees are more satisfied with corporate welfare than other aspects, but it is only the most basic
expectation of employees, which is at an average level. Other dimensions such as satisfaction with
salary level, satisfaction with salary increase and satisfaction with salary management are only
slightly higher than 3.000 but lower than 3.100, which means that the company has not satisfied its
employees in terms of salary satisfaction, but only met the basic expectation of employees' life needs.

Table 3: Descriptive statistical indicators of salary satisfaction.

Number Sample Minimum Maximum Average Standard
Name Median
of items size value value value deviation
Compensation and
4 206 1.000 5.000 3.124 1.004 3.000
benefits satisfaction
Satisfaction with
Compensation 6 206 1.000 5.000 3.092 0.942 3.000
Management
Satisfaction with
4 206 1.000 5.000 3.063 0.955 3.000
salary growth
Satisfaction with
4 206 1.000 5.000 3.056 1.026 3.000
salary level
Avg 18 206 1.000 5.000 3.085 0.915 3.000

3. Result
To improve employees' compensation satisfaction can effectively enhance their innovation
performance, enterprise managers can focus on four aspects: compensation level, compensation
benefits, compensation growth, and compensation management. However, improving compensation
management satisfaction can be replaced by increasing the management cost. From the perspective

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of the implementation process, it is a relatively low-cost alternative for the firm to increase employee
pay satisfaction under the direction of compensation management. Compared with investing more
money to improve employees' salary level, compensation benefits, and satisfaction with the salary
increase, companies choose to invest more energy in compensation management and design a fairer
and more reasonable compensation management system, which can improve employees' innovation
performance more effectively by spending less money.
(1) Employee dynamism was not shown to have a statistically significant beneficial influence on
innovation performance, contrary to the premise. The same issue was discovered via interviews with
several workers and open lines of communication on vitality and creativity. Most workers agree that,
depending on the type of innovation, a lively work environment does not inevitably contribute to
better innovation performance. Innovation comes from creativity, and creativity comes from
imagination. A person's imagination is partly determined by innate, genius ideas that are always
different from others and partly comes from the accumulation of the latter; when the accumulation
reaches a certain level, the quantity causes the quality change, and a chance inspiration can transform
the accumulated things into innovative results. But vitality difficult to play a direct role in both
aspects. Of course, the connection mechanism needs to be further studied, and this is only a
preliminary inference.
(2) The hypotheses that job satisfaction mediates the relationships between compensation level
satisfaction and innovation performance, compensation benefit satisfaction and innovation
performance, and compensation growth satisfaction and innovation performance are all rejected. The
author's curiosity was piqued by this finding, and the author's discussions with employees and some
scholarly studies' tentative agreement with this conclusion lend credence to the possibility that, as
times have changed and people's incomes have increased, pay equity has become the most important
factor for employees at this stage. Human resource management in the business world may learn a
lot from this as well. the design of enterprise compensation system should not simply consider
monetary and non-monetary means, but should also focus on the improvement of compensation
management and compensation structure, and more The design of the compensation system should
not simply consider monetary and non-monetary means, but should also focus on the improvement
of the compensation management and compensation structure, and pay more attention to fairness, so
as to more effectively stimulate employees' passion and increase their work commitment.
4. Discussion
This paper uses the SPSSAU statistical analysis tool to verify the relationship between four
dimensions of compensation satisfaction, three dimensions of work engagement, and two dimensions
of innovation performance, as well as the mediating role of work engagement in the relationship
between compensation satisfaction and compensation. The study's findings are summed up based on
the data analysis.
(1) The research of the relationship between remuneration satisfaction and innovation performance
shows that there is a strong connection between the two concepts. In the regression results of
compensation satisfaction and innovation performance, the regression coefficients of compensation
level, compensation benefits, compensation growth, and compensation management satisfaction are
all positive, with p-values less than 0.01. Therefore, compensation management satisfaction, growth
satisfaction, benefits satisfaction, and level satisfaction all significantly affect innovation
performance.
(2) Overall, it is evident from the findings of the correlation study between remuneration
satisfaction and job engagement that there is a strong relationship between the two. In the regression
results of compensation satisfaction and work engagement, the regression coefficients of
compensation level, compensation benefits, compensation growth, and compensation management

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satisfaction are all positive, with p-values less than 0.01. Therefore, compensation management
satisfaction, growth satisfaction, benefits satisfaction, and level satisfaction significantly affect work
engagement.
(3) The research of the relationship between employee enthusiasm at work and productivity in
terms of new ideas shows a strong link between the two concepts. Dedication and focus are strong
predictors of innovation success due to their positive standard regression coefficients.
5. Conclusion
Since it is the most nuanced part of HRM, enterprise pay management has always taken into account
the unique needs of each employee. Workers see their salary as an indicator of not just their economic
value to their company but also of how much their efforts are valued and whether or not they will be
promoted in the future. Attracting top talent, motivating existing employees, and retaining critical
personnel all benefit from well-managed pay plans. The relationship between employee
compensation satisfaction and innovation performance is confirmed in this paper through research
and data analysis. Work engagement is mediating in compensation satisfaction and innovation
performance. Studying its intrinsic influence mechanism also provides us with some insights that can
be used to design an enterprise compensation system. The author offers the following
recommendations for establishing a fair compensation incentive system for firms in light of the
findings of this article and some significant findings from the data analysis, intending to enhance
workers' innovation performance:
(1) Boost employees' happiness with their pay at the company. The incentive impact of pay has
not yet completely manifested itself, and employee wage satisfaction is now at a passing level, merely
meeting the employees' fundamental requirements and expectations for their quality of life.
(2) Improve the standard of compensation management. Enterprise managers may concentrate on
four aspects: pay level, compensation benefits, compensation growth, and compensation management
to boost workers' compensation satisfaction, which can successfully improve their innovation
performance. The increase in management costs, however, might replace the gain in compensation
management satisfaction. Enhancing R&D staff happiness through pay management is a relatively
low-cost option for businesses from the perspective of the realization process.
(3) Pay equity needs more significant consideration. For compensation management to achieve
incentive utility, pay equality is a must. Employee motivation is influenced by both absolute and
relative remuneration, in addition to both. Employees may only identify with the firm if the
compensation structure is fair to enjoy the motivational impact of income. Assuming that direct and
indirect compensation is mainly set, organizations that wish to boost employee innovation through
better compensation management must pay close attention to the fairness of the compensation plan
so that workers feel that their efforts and incentives are aligned. That past, present, and future
contributions are proportional to the level of rewards and that employees' pay levels are competitive
with those of comparable positions in the same industry, region, and scale when designing the
compensation system. To accomplish the relative justice of the pay, the horizontal, vertical, and
external are all necessary.
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DOI: 10.54254/2754-1169/31/20231490

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