Traditional and Modern Pay

system
 Traditional system of compensation

➢ Cost of living and labour market

➢ Base wage or salary
➢ Evenly distributed between employees
➢ Correlated with seniority
➢ Individual performance
 Bases for Modern Pay System
➢ Variable pay
➢ Based on business performance
➢ Differentiated
➢ Based on individual performance
➢ Based on team and organisational
performance
➢ Used as a means of communicating values
 Traditional Pay System
• Traditional Pay Systems sets pay levels in a narrow band with regular annual
increases.

• There may be 3 to 4 percent pay increase annually.

• Increases are meant for promotions, merit, cost of living, etc.

• There is less distinction between merit increases and cost of living increases.

• This "base pay" system is one that most people are familiar with. Often, it
includes a set salary or wage, a set schedule for merit increases, and a set
benefits package.
 Modern Pay System
• Modern Pay System pays greater emphasis on
variable pay, rather than an automatic increase
each year.
• In other words, the base wage is seen as what
the job is worth on the open market (determined
by surveys, supply and demand, specialty, etc.)
• With this system, an employee can get a raise
either by increasing his job's value or by
performing well.
Modern Pay System:

Modern Pay System It pays greater emphasis on variable pay

Base wage seen as job worth in open market,
merit pay - reward for results by employee each year An employee can get a raise either by increasing his job's value or by performing well

Some companies use three-way system to determine annual increases: Did the employee accomplish his goals? Did the company reach its targets? Did the employee act in accordance with established competencies for his job?
• Modern Pay System:
Modern Pay System Some companies create
broader bands in salary structures