We have now completed the discussion of the pay management process. Management includes control: control of the way managers decide

individual employees' pay as well as control of overall costs of labor. As we noted, some controls are designed into the fabric of the pay

system $($embedded controls$).$ The salary budgeting and forecasting processes impose additional controls. The formal budgeting process

focuses on controlling labor costs and generating the financial plan for the pay system. The budget sets the limits within which the rest of the

system operates.

We also noted that with the continuous change in organizations, compensation managers must understand how to manage change and be

knowledgeable business partners. They are responsible for communicating information about pay in a way that treats employees fairly and

honestly. The basic point is that pay systems are tools, and like any tools they need to be evaluated in terms of usefulness in achieving an

organization's objectives.

Review Questions

How can employers control labor costs?