To managers, the whole area of compensation is considered as both an expense and an asset. As an expense, compensation is a reflection of the cost of hiring labor. As an asset, wages and benefits encourage employees to do their work and remain in their jobs. As a natural result, compensation programs have a lot of influence on employee’s attitudes and behavior where morale is higher when compensation is considered fair and morale is lower when compensation is considered to favor the employer, demonstrates unfair practices, or does not reflect the local labor market.

Martin Evans managed a large but financially struggling computer networking company. Although no formal policies had been established, Martin had a practice of paying the lowest wage possible. For example, one of his interns, Greg Masterson, was paid minimum wage. During a period of three weeks, Greg had shorted out a server, lost an entire role of cable from the back of his truck because it was not securely tethered, and he had burned out the clutch in a new pickup truck. Melvin grumbled, "Greg is the most expensive darned employee I’ve ever had."

As Martin discovered, paying the lowest possible wage didn’t save money; instead, the practice was extremely expensive. In addition to relatively unproductive workers, he had a high turnover rate, as his more qualified employees quickly left to join better paying organizations. In addition, poorly trained or disgruntled employees can have particularly disastrous consequences for the company if their role involves customer contact. No firm can tolerate continued poor customer service in today’s competitive business environment.