One objective of a carefully managed compensation plan is to keep labor costs low. In order to achieve this objective, a firm should strive to keep wages, salaries, and benefits at or below the compensation levels of its competitors.

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A well-managed compensation plan does strive to keep labor costs low. However, this does not necessarily mean that a firm should strive to pay wages and salaries that are at or below the level offered by competitors. Compensation is one of the main marketing tools that companies use to attract employees. Offering low wages may make it difficult to compete for the best employees. A carefully managed compensation and benefit program can help a firm accomplish a variety of objectives: attracting the kinds of people the organization needs, providing incentives for employees to work productively, keeping valued employees from leaving for better-paying positions with competitors (or even starting their own business), and maintaining morale by providing workers with some sense of financial security. These objectives are not necessarily accomplished by paying low wages. Instead, they may enable the firm to keep labor costs low by ensuring high productivity from a loyal workforce.

One Objective of a Carefully Managed Compensation Plan Is to Keep