Toward a contingency theory of compensation strategy

This paper develops several propositions that link compensation strategy and the effectiveness of the compensation system. The underlying argument is that effectiveness at realizing intended pay strategies depends significantly on the existence of a match between compensation strategies, organization and environment. These propositions are tested in a sample of 33 high tech and 72 non‐high tech firms or business units in the Boston Route 128 area. Respondents are managers responsible for compensation policies in these firms or business units. The relationships among compensation strategies, organization characteristics and environment are explored. The findings may help researchers conceptualize, and practitioners manage, the relationship between reward processes and strategy in organizations.