Compensation model

The compensation model is a framework for designing, operating and evaluating an organisation’s remuneration system. Associated with the work of George Milkovich and Jerry Newman, it connects three dimensions—objectives, policies and techniques—so individual pay practices can be assessed against the results the organisation wants.

When to use it

Use the model to diagnose an existing pay system, design a remuneration strategy or evaluate a proposed change to salary, incentives and benefits. It helps leaders connect market positioning and internal pay relationships with fairness, performance, legal obligations and operational governance.

Origins

George T. Milkovich and Jerry M. Newman developed the framework through successive editions of their influential textbook Compensation, first published in the 1980s and later updated with Barry Gerhart. The cited 2013 edition—and the 2013 teaching materials derived from it—present compensation as a strategic system rather than a collection of isolated pay practices, organising decisions around objectives, policy choices and implementation techniques.

What it is

1. Objectives state what the pay system must achieve.
2. Policies define the strategic choices that guide pay relationships and decisions.
3. Techniques translate those choices into job structures, market data, incentives and administration.