Final answer:
The first principle in designing an effective compensation system is to reward people based on the value of their contribution to the social product.
Step-by-step explanation:
The first principle in designing an effective compensation system and the most dependable way to keep people focused on strategy execution and the achievement of performance targets is to reward people for their work activity according to the value of their contribution to the social product. This principle, known as Contribution, emphasizes the importance of recognizing and rewarding employees based on the value they bring to the organization.
By implementing this principle, the compensation system ensures that employees are motivated and aligned with the organization's strategy and goals. It promotes fairness and equity by recognizing the individual contribution rather than simply focusing on effort or costs incurred.
For example, a salesperson who consistently exceeds sales targets and brings in a high revenue would be rewarded with a higher compensation compared to someone who puts in equal effort but does not achieve the same results. This encourages top performers to continue delivering exceptional results and motivates others to strive for excellence.