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Across organizations, the single largest operating cost, on average, is employee compensation or remuneration (Blinder, 1990; European Parliament, 1999; US Bureau of Labor Statistics, 2001). Thus, for an organization to be successful, it must effectively manage not only what it spends on compensation, but also what it gets in return. Contextual factors serve to place some limits on compensation decisions. Legal, institutional (e.g., labor union), cultural, and market (product and labor) contextual factors vary across countries and often within countries, meaning that the degree of discretion an organization has in managing compensation decisions will also vary. Nevertheless, organizations typically have at least some discretion in compensation design.1 This choice can have a major impact at every level of the organization on decisions made by ...

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