Effects of Compensation Strategy on Job Pay Decisions

Previous research has revealed but not explained the occurrence of wide variations in pay for the same job, even within a single local labor market. We investigated how compensation managers from a wide variety of organizations combined information about current job pay rates, market rates, and job evaluation points to arrive at new pay rates. In addition, we examined the role of organizational pay leadership position and external or internal orientation in decisions about job pay, controlling for differences in organizational demographic characteristics. Results suggest that pay strategies affect assigned pay levels, with managers from market-leading and internally oriented firms assigning higher pay. In addition, pay strategies appear to influence the relative weights attached to market survey versus job evaluation information. Organizational demographics also affected assigned pay levels, but to a lesser extent than pay strategies.