There are different factors that can influence an organization's pay structure. Some of the things affecting pay structure are considered external and some are within the company. Both of these make a difference on how pay is calculated and a compensation package is put together.
External Causes
External reasons for pay structure may be influenced by society, current economic trends, and expectation of employee value. Different jobs are worth more to employers by how valuable that employee/job duties are to the employer. For example, in healthcare a medical records clerk would not get the same pay as a physician due to education, experience, and value to the employer.
Employment legislation is another external factor that employers have little or no control over. In the United States, for example, there are several laws that organizations must comply with or face possible consequences such as fines and lawsuits. Some legislation in the U.S. are the Civil Rights Act, the Equal Pay Act, Americans With Disabilities Act, Minimum Wage laws, and OSHA compliance just to name a few.
Other people who are involved in businesses are outside parties or external stakeholders. They can consist of consumers, unions, shareholders and sometimes even politicians. These different groups can influence and affect the business and its pay structure. Unions, for example, often dictate wages and benefits to union employees.
Lastly, the culture of where the organization is based can also influence these decisions. Different societal customs will affect pay as well. In some societies, women are paid less than men. Other countries favor seniority, such as Japan. Therefore, the local traditions also weigh into how a compensation package is determined.
Organizational Factors
Different variables within the organization itself also affects pay structure. The type of organization and its strategy are a primary consideration. With that, the employer's human resources is a large consideration. What types of people does the organization need to employ? Do they need technical staff with a great deal of knowledge, skills or experience? Will employees pay be tied to their performance? These questions need to be answered.
The organization's human resources policy also affects this. Things that also make a difference are if employees are able to advance within the organization, including increased pay and promotions. Other organizational items include the employee benefits, such as insurance and flex time options. Employees also need to feel the pay structures are fair and equitable. Employees accepting the pay differences for the jobs is vital to its success.
Ensuring that the big picture is kept in mind when structuring a compensation package is the most important part. Employees and employers need to feel they benefit from each other and it needs to be a mutually beneficial relationship. Employee attitudes and productivity are often based on pay and compensation, therefore a well-planned reward and compensation structure are extremely important to overall sucess.
Putting Them Together
Organizations of all types would benefit from understanding all the factors that influence pay structures. There are external structures which they have no direct ability to influence, but must understand and comply with. However, some of the internal organizational factors they can control and need to comprehend to maintain their strategic advantages.
Source
Milkovich, George T. and Newman, Jerry M. (2005) Compensation (8th ed). NY: McGraw-Hill Irwin
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