Proper compensation and performance management system is an ongoing discussion as it plays an integral part in organizations. Pfeffer (2005) argues that wage compression and symbolic egalitarianism are best practice for gaining competitive advantage, however other theorists argue for a “best fit” model depending on the organizational strategic plan. This essay explores these topics by demonstrating how culture, work, and organizational context are interconnected and influence a company's compensation system. Ultimately, this is demonstrated by how these multiple factors align that influence the reward system and promote organizational efficiency, rather than Pfeffer's (2005) egalitarian attitude. An organization's internal compensation structure can influence how employees perform against the company's strategy. A worker's performance does not only depend on the level of pay he receives (Solow, 1979, in Alexopoulos & Cohen, 2003), but also takes into account his pay compared to superior and inferior workers, those in the same group, and external work. . market (Akerlof and Yellen, 1990). Pfeffer (2005) argues that wage compression, the act of reducing the size of pay differences between employees, improves productivity. To gain competitive advantage, organizations must recognize not only hierarchical pay compression (between management and employees) but also differences between individuals at similar levels. Reducing pay discrepancies promotes a sense of community and common destiny, leading to greater efficiency by decreasing interpersonal competition and increasing collaboration (Pfeffer, 2005). Wage compression therefore supports equity theory; If internal factors and external competitiveness are aligned, employees receive their pay up to… middle of paper… A Kantian theory of meaningful work. Journal of Business Ethics 17, 1083–1092. Hibbs, D., & Locking, H. (2000). Wage dispersion and production efficiency: Evidence from Sweden. Journal of Labor Economics 18, 755–782. Kraft, K. (1994). Wage differentials between skilled and unskilled workers. Weltwirtschaftliches Archiv, 130(2), 329-349. Lallemand, T., Plasman, R., & Rycx, F. (2004). Intra-firm wage dispersion and firm performance: Evidence from linked employer-employee data. Kyklos, 57, 533-558. Lazear, E. (1989). Equal pay and industrial policy. The Journal of Political Economy, 97 (3), 561-580. Milkovich, G., Newman, J., & Gerhart, B. (2011). Compensation (10th ed.). Singapore: McGraw-Hill.Pfeffer, J. (2005). Produce sustainable competitive advantage through effective people management. Academy of Executive Management, 19 (4), 95-108.Plimmer?