After studying this chapter you should be able to:

1. Define compensation and differentiate among direct financial compensation, indirect financial compensation, and nonfinancial rewards.
2. Describe the strategic importance of human resource management (HRM) activities performed in organizations.
3. Explain how compensation systems relate to employees' motivation, productivity, and satisfaction.
4. Explain how external factors (labor markets, the economy, the government, and unions) and internal factors (size and age of the organization, labor budget, and who is involved in pay decisions) relate to a firm's compensation policy.
5. Discuss how pay surveys help managers create efficient and equitable pay systems.
6. Describe the job evaluation process.