There are only four ways to pay people.
First, we can pay for the job a business or a company hires people for.
Second, we can pay for the skill possessed by the people who are hired.
Third, one can pay people the market going rate for the job or the position they hold.
Fourth, it can be a combination of the first three.
Thus, first and foremost a company or an organization needs to determine is which path they are going go down. Having said this quite often managers and executives criticize the Pay System without having either understood or without determining strategically how they want pay their people based on the structure of the work execution portion of their business plans. Outside consultants come in and set about structuring pay systems without answering this first base question. In my consulting practice, I have often asked CEO clients what they want to pay their people for, based the four questions stated above, and they have no clue. They just want some kind of a structure. Or they say do not implement this or that program. This feeling being based on their past experiences. But they have no clue fundamentally how they should pay their people based on the strategic organizational requirements. So quite often the "suit is borrowed off the rack" and things do not work. People put in "the Hay System" or some other system. This then results in universal angst. They “cut immediately instead of measuring twice before” - the carpenter's rule.
Pay, I say is a lagging variable not a leading one. Don't blame the pay system for all the ills in the organization. Recruit the "right" people, for the "right" job at the "right" time first and then determine the best pay package for them.
So, borrowing from Steve Covey I say, "begin with the end in mind".
