Human resource practices and especially compensation are the elements most likely to promote attraction and retention of competent workers. However firms can choose between a mix of compensation policies and practices. The existant literature suggests that these choices are influenced by either external strategy considerations (i.e. diversification, differentiation) or by internal ones such as quality management and self-managed teams. On the basis of data from 602 large firms, this study demonstrates that compensation policies are linked to internal strategies rather than external ones. Specifically it was found that firms using self managed teams, total quality management and employee participation are more likely to choose innovative forms of compensation including variable pay, group-based pay, and a higher percentage of bonus pay as well as a lead policy. These results support to some extent the resource based perspective espoused by Barney (1991) which stresses the synergy between management practices.

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