A formal compensation administration program is the basic management tool for ensuring that employees are satisfied with their pay and benefits, that both internal and external equity are adequately addressed, and that control is maintained over compensation costs. Such a program will help attract top talent, retain core employees, and encourage longevity while efficiently using financial resources.

Establishing an effective compensation administration program requires job analysis, job evaluation, and job pricing. Once established, it is important to maintain and update the compensation philosophy/strategy, including the following aspects of the program: job grades/ranges, employee classification, salary increases, performance appraisals, and incentives.