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Hence this study seeks to analyze how the recognition of the purpose of adopting yearly salary system has affected the organizations effectiveness through understanding the meaning of yearly salary system, observing the adoption of this system, and studying the research papers on this subject matter. Summary of the result of the study is as follow: First, the growth of the organizations in terms of their sizes is found not to have an effect on the process of understanding-responding regarding the purpose of adopting the yearly salary system. As the yearly salary system emphasizes individual capability and the results, the existing hierarchical relationship tends to deteriorate. Second, even the most proactive and challenging entrepreneurs who have participated in the survey of this study have not significantly affected the process of understanding-responding regarding the purpose of adopting the yearly salary system to the individual employees. Third, the change in the economical and technical environment tends not to have an effect on the process of understanding-responding regarding the purpose of adopting the yearly salary system. Although they cannot be said that these changes absolutely do not affect the process, it probably is due to the industries not being able to give up the centralized and hierarchical system, thereby the compensation system is based on privilege factors rather than individuals capability. Fourth, the process of understanding-responding regarding the purpose of adopting the yearly salary system to the individual employees has a significant effect on the organizational validity. The purpose of adopting the yearly salary system is to simultaneously actualize high salary-low labor cost so to control the labor cost and to increase productivity by providing incentives. Basing on the individual productivity evaluation, differentiation in the increases of the salaries can be achieved, thereby, fairness in the compensation can be doubled. As a result, employees will work harder, thus, increasing the productivity of the organizations. Fifth, the growth in the size of the organization and the proactiveness of the top management are shown to have positive effect on the organizational validity. The older the industry the more likely that the yearly salary system can be attributed in developing decentralization management factors from the management factors obtained from high level of professionalization, formulization, decentralization, and growth of organizations. In conclusion, if only the results are emphasized in the yearly salary system, there may cause proliferation of short term oriented result seeking mentality and selfish sense of identity, which cannot be said a positive thing to the industry in the long run. However, the organizational characteristic variables will have positive effects to the organizational validity provided that the adoption of yearly salary system is aimed at increasing the productivity through controlling the labor cost and providing incentive to the employees.