(New) For what does salary compensate?

October 27, 2025
by Noriyuki Morimoto

For what do employees consider their salary and bonuses to compensate? Is it common sense to see it as compensation for work? Are those who see it as compensation for expectations humble people? Are those who see it as compensation for their own worth overly confident? And those who see it as compensation for the pain of labor—aren’t they unsuited for corporate life?

Payments to professionals like lawyers, accountants, tax specialists, or consultants are compensation for services rendered. Then, should we view salaries and wages similarly as compensation for work? But it is not possible to consider compensation as purely work-based in a typical employment relationship, except for certain contracted assignments for specific tasks. This is evident, for example, in how new graduates are paid. It seems undeniable that this compensation is based on expectations.

Then, is it possible to view salary as compensation for the disutility of labor? Within the compensation systems of modern corporations, there is no clear antagonistic relationship between the employer and the employee; indeed, there isn’t even a clear distinction. This is because even those formally designated as employers are originally regular employees. In modern corporations, what matters is a singular personnel system encompassing both employers and employees, and further narrowing down to the core issue, the real question is how to establish a mechanism within that single organization to produce capable managerial personnel—that is, people on the employing side.

Whether it be work or expectations, it’s meaningless for the company if paying a salary fails to lead to results. Results here can be called value creation. Then it may seem that salary compensates for results or value. However, results cannot be known beforehand. Then, shouldn’t salary be compensation for work that leads to results? Or more precisely, shouldn’t it be compensation for the behavior that produces work that leads to results?

For what does salary compensate? This is a difficult question.

 

[Category /Human Capital Investment]