CHAPTER 3
THE WORLD OF PAY AND COMPENSATION
As the world continues to “shrink” and as the demands people make on politicians, employers,
and jobs continue to become more similar, pay and compensation differences among workers all over the
world continue to narrow. Not only are bank executives in Atlanta, Georgia, interested in what other
banks in the Atlanta metropolitan area pay data entry operators, but they also want to know what data
entry operators are being paid in Jamaica, Barbados, or even mainland China. During the 1970s, pay
differentials for factory workers caused rapid changes in the location of manufacturing facilities
throughout the world.
Although certain components of the compensation package are comparable in a wide variety of
business settings, major differences exist in compensation opportunities provided by businesses in
different settings (including government, private sector, profit and nonprofit) and businesses that differ by
size (dollar volume, number of employees, etc.).
This chapter identifies and describes thirteen correlates that influence the design and
administration of compensation systems. They are:
1. Kinds and levels of required knowledge and skills
5. Size of business
6. Philosophy of management
7. Total compensation package
8. Geographic location
The final section of the chapter discusses the influence competition is having on the pay of many
workers, ranging from those who are unskilled to those who are highly-skilled professionals and
managers.
2. The move toward a service economy increases the demand for a labor-intensive work force.
4. Unionized workers in manufacturing settings have been the highest-paid industrial workers.
5. Deregulation in some major industrial areas and foreign competition have accelerated the
1. For a compensation program to have significant motivational value, it must include in some
2. Base pay, which normally ranges anywhere from 40 to 80 percent of total compensation
costs, is influenced by a number of major forces. Chapter 3 identifies and discusses in some
detail 13 correlates or factors that either independently or in some combination can influence
base pay decisions.
3. Compensation professionals must not only recognize the influence of these 13 correlates of
4. The ability to compete is the name of the game in the first decade of the twenty-first century
for all kinds of businesses and organizations in the USA. Competition may be foreign or