Impact of compensation management on the business performance: Empirical research

Compensation management is a process of creation, implementation and maintenance of the reward system, which is focused on improvement of the organizational, group and individual performance. Creating of incentive compensation policy is a complex activity and challenge for human resource management. This paper focuses on the relationship between compensation management and business performance. The subject of empirical research were companies from the Republic of Srpska, which employ more than 250 workers. Empirical data related to compensation management were collected by using a questionnaire, whereas empirical data related to the business performance were generated from the financial statements of the observed companies. Applied methods of statistical analysis showed that there is a statistically significant correlation of the observed relationships between compensation management and defined indicators of business performance. Furthermore, it was found that organizations which managed compensation in an adequate way have a statistically significantly higher financial performance. The results show the importance of compensation management, selection of appropriate compensation instruments, and optimization of their level and structure.