In developing a pay system, several policy decisions must be made. These are:
- Pay level policy: An organization’s pay level is simply the average wage rate paid for a specific group of jobs. Pay level is important because it influences both the organization’s ability to attract and retain competent employees and its competitive position in the product market. Pay level policy refers to how an organization’s pay level compares to its competitors pay levels. The concept of external equity, the degree to which an organization’s wages are competitive with those of its competitors is reflected in a firm’s pay level policy.
- Pay Structure Policy: A company must also make a decision about pay ranges, the range of wages allowed by a specific wage classification and the amount of overlap between the ranges. The government puts an absolute minimum of any pay range, but in practice, an organization must decide on the maximum and minimum pay for any job or set of jobs in the pay structure. This maximum and minimum are based on the worth of the job, which is determined through a job evaluation.
- Extrinsic Rewards: This is the direct financial benefits/rewards given to the employees according to their performance. It includes increased provide cash bonuses etc. These financial benefits obviously increase the morale of the employees and they will try to give more input for the organization.
- Intrinsic Rewards: Sometimes Company may find it difficult to increase salaries, provide cash bonuses or incentives instead offering an employee a change in job title, which includes more prestige.
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