Government compensation policy needs to have a clear strategy and direction in order to yield the effect of effective communication and employees' behavioral modification. However, it often has not been the case in Taiwan where strategic issues are seldom discussed. This paper first suggests the theory of strategic pay and review pay polices developed and changed in many other OECD countries. Then, the author argues strongly, with the results of empirical analysis, that linking pay with performance more tightly shall be the major strategic choice of pay policy in Taiwan. Finally, this paper proposes the way in which several important policy changes needed to be taken in order to achieve the goal of performance-related pay system.