Significance of Pay Plan

Pay is an exchange between the individual or group and the employer. A pay system consists of all the arrangement made in organizations for what and how people should be paid for the jobs they do. The system will also provide rewards for how they, their team or the organization does, and for what they contribute because of the levels of capability (competence/ or skill they achieved). A firm’s compensation scheme also communicates a great deal about the firms’ value and cultures. Employees are more likely to look at what a company pays rather than what it says. In many respects, people behave as they are rewarded. In so far as this is true, a compensation scheme communicates to the employees what the firm’s expectations are of them. Therefore, it says quality is an important value; it should be reinforced through some element of the total compensation system. So the pay plan is important because through it organization tries to get achievements.
  • Attract qualified staff
  • Retain qualified performer
  • Reward performance, responsibility and royalty and provide for progression and increase.
  • Motivate people-encourage to active superior levels of quality performance.
Steps that are used for establishing pay plans
The pay plans are made in the systematic process that includes for the coming phases:
  1. Pay Level: It analyzes the factors like average rate paid by employers; external equity etc. then the organization can make market survey for the better pay plan.
  2. Pay Structure: It is made in the different factors and it is the level versus rate of pay plan.

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