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r elaborate on how to set and manage salary, various factors that influence firm performance and the benefits of effective salary management. Nevertheless, all these above questions serve the proposal i.e. the relationship between salary and performance.

3. Literature

3.1 The Relationship between Salary and Performance

In recent years, there have been conflicting arguments on firm performance. Previous studies have examined the interrelation between the intra-firm salary increases and the productivity (Grund & Nielsen, 2004). As the compensation of employees’ contribution to companies, salary is directly related to employee’s performance. Now many employees especially those salesmen are paid in this way. This means the salary is totally in accordance with employees’ performance regardless of their position, capability and efforts. As long as he doesn’t meet the requirement, he could not gain the expected compensation. Salary based on employees’ performance id more fair, flexible and incentive. It encourages employees to do their best in order to get higher payment.

On the other hand, salary is in relation with company’s performance. Company’s strategy will also influence employees’ salary. The stage that company is in decides the salary it can offer. For example, if the company is newly set, it may apply very flexible salary mechanism and provide more short-term incentives in order to attract more talents. Besides, a company’s product and service also influence salary. For those companies which are cost-driven, they will try hard to reduce production costs as well as salary offer. Last but not the least, corporate culture and corporate positioning play roles in the impact on salary setting. Harmonious and effective corporate culture will influence employees’ expect on salaries.

3.2 Setting and Managing Salary

So as to improve and perfect the salary mechanism, companies need do a series of work including evaluating posts, setting clear salary position as well as carrying out performance evaluation. There are also some studies investigate the effect of inequality in the perspective of different levels of salaries (Ebmer & Zweimueller, 1999). To begin with, evaluating posts refers to make clear of employees’ responsibility as well as realize internal fair. Through evaluating posts, companies can have a better understanding of the overall situation and allocate duties more effectively. Secondly, companies should set clear of their own salary level as well as salary mechanism. The salary level is quite important for it is the direct expression of companies’ competitiveness in the market, influencing companies’ ability in attracting, encouraging and retaining talents. Meanwhile, salary mechanism not only relates to employees’ salary allocation but also the incentive. It has direct impact on employees’ working enthusiasm. Lastly, companies should carry out performance evaluation. Reasonable performance evaluation can directly combine employees’ performance with their compensation.

3.3 Various Factors Influence Salary
There are various factors that influence companies’ salary setting and hence influence companies’ performance. Generally speaking those factors come from both inside and outside.

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