ABSTRACT
This chapter analyzes how direct compensation strategies and programs used for different categories of employees can be integrated to produce the desired level of overall performance. It addresses base pay management, and the next addresses variable compensation management. Base pay is the major component of direct compensation for most employees. Sales personnel working strictly on commission and production employees rewarded largely or only through output-based incentives are an exception. The condition of the economy and how well the organization is performing should be a consideration in establishing base pay adjustment budgets and in allocating budgeted amounts. The use of cash awards in conjunction with base pay increases is a powerful way to amplify the pay-for-performance message. Skill-based pay makes the base rate contingent on how many job-related skills the employee has learned, the level of skill mastery or a combination of both. Experience has shown that average pay rates will usually go up under skill-based systems—good news for the employees.
