Explain two possible limitations associated with establishing internally consistent compensation systems

What will be an ideal response?

Answer: There may be limitations; however, that hamper agility for companies that strive to differentiate themselves from their competition. For example, internally consistent pay systems may reduce a company's flexibility to respond to changes in competitors' pay practices because job analysis leads to structured job descriptions and job structures. In addition, job evaluation establishes the relative worth of jobs within the company. Responding to the competition may require employees to engage in duties that extend beyond what's written in their job descriptions whenever competitive pressures demand. In the process, the definitions of jobs become more fluid, which makes equity assessments more difficult.

Another potential limitation of internally consistent compensation structures is the resultant bureaucracy. Companies that establish job hierarchies tend to create narrowly defined jobs that lead to greater numbers of jobs and staffing levels. Such structures promote heavy compensation burdens. Employees' core compensation depends on the jobs they perform, how well they perform their jobs, or the skills they possess. Employee benefits, however, represent fixed costs that typically do not vary with employees' job performance or their skills. Employing a larger number of workers to staff a multitude of narrowly defined jobs contributes substantially to exorbitant fixed costs for employee benefits.