A Model to Simulate the Effects of Work Force Dynamics on Compensation Policy

Industry’s traditional approach to allocating and managing compensation costs is to set aside a specific amount of money for merit pay• The size of this fund is often expressed as a percent of overall compensation. The fund is usually based on inflation, profits, labor market competition and related financial factors. Merit funds are distributed as salary increases among eligible employees based on performance appraisals, special accomplishments, and other factors indicative of meritorious performance.