How is Compensation Level

Determined?
By: Reyes
How is Compensation Level determined?
In compensation administration, determining the compensation level for
a position or employee involves a systematic process that takes into
account various factors.
Pay Level
• refers to the specific position of a job within an organization's
compensation structure. It represents the relative placement of a
particular job in terms of its value or worth compared to other jobs in
the same organization. Pay levels are often associated with a numerical
or alphabetical identifier, such as pay grades or bands.
Pay Savings
• typically refers to cost-saving measures or strategies implemented by
an organization to manage or reduce overall compensation expenses.
This can be achieved through various means, such as optimizing salary
structures, implementing incentive plans, or making adjustments to
benefits packages.
Pay Level Strategy
refers to the approach an organization takes in determining the salary or wage levels for different
positions within the company. It involves setting the relative value and range of compensation for
various jobs based on factors such as job responsibilities, required skills, market conditions, and
internal equity considerations.
• Meet the Market
This strategy aims to align employee salaries with the prevailing market rates for similar roles in the
industry and geographic location.
• Lead the Market
This involves intentionally setting salaries above market rates to attract top talent and position the
organization as a leader in compensation within its industry.
• Lag the Market
This strategy intentionally sets salaries below market rates, often as a cost-saving measure or as a
way to control labor costs.