Determining the right pay entails combining the results of the job analysis and job evaluation processes and market pay data. Although the pay levels within an organization reflect external competitiveness and internal equity considerations, the decision on the final pay level - the organization’s pay policy will be determined by many factors, including competitive strategy, HR strategy, reward objectives, organizational design and culture (Armstrong & Stephens 2005).
The pay model shown in Table 1 serves as a framework for examining current pay systems and it involved three basic building blocks: compensation, policies that form the foundation of the compensation system, techniques that make up the compensation system.

Reward policies provide guidelines for the implementation of reward strategies and the design and management of reward process. Basically, every employer must obey four major policies (White & Druker 2000): internal alignment, external competitiveness, employee contributions, management of the pay system.

Internal alignment refers to comparisons among jobs or skill levels inside a single organization. Jobs and people’ skill are compared in terms of their relative contributions to the organization’s business objectives (White & Druker 2000). How, for example, does the work of the programmer compare with the work of the systems analyst, the software engineer, and the software architect? Does one contribute to providing solutions for customer and satisfying shareholders more than another? Internal alignment pertains to the pay rates both for employees doing equal work and for those doing dissimilar work. In fact, determining what is an appropriate difference in pay for people performing different work is one of the key challenges facing managers.

External competitiveness refers to compensation relationships external to the organization: comparison with competitors (White & Druker 2000). How should an employer position its pay relative to what competitors are paying? How much do we wish to pay accountants in comparison to what other employers would pay them? What mix of pay forms- base, incentives, stock, and benefits- will help achieve the compensation objectives?
Increasingly, organizations claim their pay systems are market-driven, that is, based almost exclusively on what competitors pay. However, “market driven” gets translated into practice in different ways. Some employers may set their pay levels higher than their competition, hoping to attract the best applicants (White & Druker 2000).
External competitiveness decisions-both how much and what forms- have a twofold effect on objectives (White & Druker 2000):
1. To ensure that the pay is sufficient to attract and retain employees if employees do not perceive their pay as competitive in comparison to what other organizations are offering for similar work, they may be more likely to leave,
2. To control labor costs so that the competitiveness directly affects both efficiency and fairness. Also, it must do so in a way that complies with relevant legislation.

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Robert Smith has spent more than 15 years working as a professor at New York University. He is interested in assisting students and people who need assistance in writing. Now he spends most of his time with his family and shares his Univesity experience in writing research papers and essays.