Because pay is important both in its effect on employees and on account of its cost, organizations need to plan what they will pay employees in each job. An unplanned approach, in which each employee’s pay is independently negotiated, will likely result in unfairness, dissatisfaction, and rates that are either overly expensive or so low that positions are hard to fill. Organizations therefore make decisions about two aspects of pay structure job: pay structure and job level. Job structure consists of the relative pay for different jobs within the organization. It establishes relative pay among different function and different levels of responsibility. Pay level, is the average amount the organization pays for a particular job. Together, job structure and pay level establish a pay structure that helps the organization achieve goals related to employee motivation, cost control and the ability to attract and retain talented human resources.
The organization’s job structure and pay levels are policies of the organization, rather than the amount a particular employee earns. Typically, the amount a person earns depends on the individual’s qualifications, accomplishments, and experience. The individual’s pay may also depend partly on how well the organization’s performs.
Especially in an organization with hundreds or thousands of employees, it would be impractical for managers and the human resource department to make an entirely unique decision about each employee’s pay. The decision would have to weigh so many factors that this approach would be expensive, difficult, and often unsatisfactory. Establishing a pay structure simplifies the process of making decisions about individual employee’s pay by grouping together employees with similar jobs.