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6.1 How is pay determined? 
There are a number of ways in which organisations determine pay. 
(a) 
Job evaluation
. This is a systematic process for establishing the relative worth of jobs within an 
organisation. Its main purpose is to provide a rational basis for the design and maintenance of an 
equitable (and legally defensible) pay structure. 
The salary structure is based on 
job content
, and not on the personal merit of the job holder. 
(The individual job holder can be paid extra personal bonuses in reward for performance.) 
(b) 
Fairness
.
 
Pay must be 
perceived 
and felt to match the level of work, and the capacity of the 
individual to do it. 
(c) 
Negotiated pay scales
. Pay scales, differentials and minimum rates may have been negotiated at 
plant, local or national level, according to such factors as legislation, government policy, the 
economy, the power of trade unions, the state of the labour market for relevant skills, productivity 
agreements, and so on. 
(d) 
Market rates
.
 
Market rates of pay will have most influence on pay structures where there is a 
standard pattern of supply and demand in the open labour market. If an organisation's rates fall 
below the benchmark rates in the local or national labour market from which it recruits, it will 
have trouble attracting and holding employees. 
(e) 
Individual performance in the job
. This can result in merit pay awards, or performance-related 
bonuses. 
6.2 Types of reward 
An organisation may offer a range of rewards to employees, perhaps combined in a reward package. The 
range offered may include some or all of the following.

Basic wages or salary 

Overtime payments (perhaps for employees paid a wage based on hours worked) 

Performance-related bonus 

Shares 

Share options (the opportunity to buy shares at a favourable price) 

Benefits in kind (for example personal use of a company vehicle) 

Pension contributions 

Service contracts and termination payments 
Packages for employees at different levels are likely to differ. 
6.3 What do people want from pay? 
Pay has a central – but ambiguous – role in motivation theory. It is not mentioned explicitly in any need 
list, but it offers the satisfaction of many of the various needs. 
Individuals may also have needs unrelated to money, however, which money cannot satisfy, or which the 
pay system of the organisation actively denies (eg the need for leisure/family time – not overtime!) So to 
what extent is pay an inducement to better performance? Can pay be an effective motivator or incentive? 
Although the size of their income will affect their standard of living, most people tend not to be 
concerned about