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In deciding what to pay employees, and how to pay them, management must make some

strategic decisions. Will the organization lead, match, or lag the market in pay? How will

individual contributions be recognized? There are many ways to pay employees. The

process of initially setting pay levels entails balancing internal equity, the worth of the

job to the organization, and external equity, the external competitiveness of an

organization’s pay relative to pay elsewhere in its industry. The best pay system pays the

job what it is worth while also paying competitively relative to the labor market. Some

organizations prefer to be pay leaders by paying above the market, while some may lag

the market because they cannot afford to pay market rates, or they are willing to bear the

cost of paying below market. Pay is often the highest single operating cost of an

organization, which means that paying too can make the organization’s products or......

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Approximate Word Count: 1325
Approximate Pages: 6 (250 words per double-spaced page)

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