The basic purpose or objective of establishing sound compensation is to establish and maintain an equitable rewards system. The other aim is the establishment and maintenance of an equitable compensation structure i.e an optimal balancing of conflicting personnel interest so that the satisfaction of employees and employers is maximised and conflicts minimized, the compensation management is concerned with the financial aspect of employees need, motivation and rewards.

A sound compensation structure tries to achieve these objectives:

• To attract manpower in a competitive market. 
• To control wages and salaries and labour costs by determining rate change and frequency of increment.
• To maintain satisfaction of employees by exhibiting that remuneration is fair adequate and equitable. 
• To induce and improved performance, money is an effective motivator.

a) To Employees:

i. Employees are paid according to requirement of their jobs i.e highly skilled jobs are paid more compensation than low skilled jobs. This eliminates inequalities.

ii. The chances of favouritism are minimised

iii. Jobs sequence and lines of promotion are established wherever they are applicable.

iv. Employee’s moral and motivation are increased because of the sound compensation structure.

b) To Employers:

i. They can systematically plan for and control the turnover in the organization.

ii. A sound compensation structure reduces the likelihood of friction and grievance over remunerations.

iii. It enhance an employee morale and motivation because adequate and fairly administrative incentives are basis to his wants and need.

iv. It attracts qualified employees by ensuring and adequate payment for all the jobs.

v. In dealing with a trade union, they can explain the basis of their wages programme because it is based upon a systematic analysis of jobs and wages facts.