Managing compensation is one of the most important duties of Human Resources departments and has a strategic impact on businesses. Obviously, compensation in its various forms is a cost. This means that businesses must contain compensation costs in order to increase profitability. However, attracting and retaining skilled workers is a key to corporate profitability which requires increasing compensation. Businesses thus face constant trade-offs between managing compensation costs and hiring and retaining the best workers.
Compensation includes not just salaries but also benefits. In most developed countries, health care is provided universally by the government and funded by taxation. The United States in unique among the OECD in lacking universal health care, meaning that businesses include health insurance as part of compensation packages. Especially as health insurance costs increase, this lack of universal national health coverage is a competitive disadvantage for American firms. Pensions are also a major part of compensation packages and often a point of contention in strikes.
Another important issue in compensation is equity. It is now illegal to pay people unequally based on race, gender, religion, disability status, or sexual orientation and Human Resources departments must monitor compliance with Equal Employment Opportunity guidelines. Increasing salary inequality, in which CEOs receive exorbitant salaries and many workers do not earn a living wage, saps employee morale. CEO pay has become increasingly controversial, as extravagant CEO compensation packages do not necessarily correlate with increased profits.