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Center for
Effective
OrganizationsEFFECTIVE REWARD SYSTEMS:
STRATEGY, DIAGNOSIS, DESIGN, AND
CHANGE
CEO PUBLICATION
G93-5 (225)
EDWARD E. LAWLER III
Center for Effective Organizations
Marshall School of Business
University of Southern California
1993Center for Effective Organizations – Marshall School of Business
U n i v e r s i t y o f S o u t h e r n C a l i f o r n i a – L o s A n g e l e s, C A 9 0 0 8 9 – 0 8 0 6
(2 1 3) 7 4 0 – 9 8 1 4
FAX (213) 740-4354
http://www.marshall.usc.edu/ceo EFFECTIVE REWARD SYSTEMS:
STRATEGY, DIAGNOSIS, DESIGN, AND CHANGEReward Systems are a critical part of any organization’s design.

How well they fit with
the rest of the systems in an organization has an important impact on how effective the
organization is and on the quality of life that people experience in the organization. Over the
past decade, some new reward systems practices have become popular in order to align reward
systems with the important changes that are occurring in the way organizations are designed and
managed (Lawler, 1990; Schuster and Zingheim, 1992).

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This chapter begins by considering the
role of reward systems in an organization and how reward systems in organizations can be
designed. It then it focuses on the fit between reward systems and the high-involvement
approaches to organization design which are becoming increasingly popular. Finally, it
considers the role of pay system change in large scale organization change efforts.
The over-riding principle that will guide the discussion in this chapter is that in order to
be effective organizations must have congruence among their various operating systems.
Particular operating system practices are neither good nor bad in the abstract. They must be
evaluated in the context of the other systems in an organization and the business strategy of the
organization. The business strategy indicates what the organization is supposed to accomplish
and how it is supposed…

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