Pay is a key element of the employment relationship. In addition to being the largest single operating cost for many firms, pay has been advocated more recently as a means through which organizations can achieve enhanced performance and sustained competitive advantage. Contemporary theories of pay highlight the role of pay as a management tool for the achievement of managerial ends and underline the importance of aligning employee behaviours to the strategic direction of the organization. This is a departure from established patterns of pay management, which emphasized the collective determination of pay and tenure-based pay progression. Pay remains a powerful means of attracting and retaining valued talent, but it is in relation to eliciting behavioural outcomes, discretionary behaviours for example, and performance (individual, team and organizational) that pay offers the greatest organizational advantage. Referred to under a variety of different terms (including new pay, reward management, strategic rewards, dynamic pay and strategic compensation management) but referred to here as strategic pay, these strategic theories of pay reflect a fundamental shift in the philosophy of pay and employment more broadly. Strategic pay has very rapidly come to represent the ‘received wisdom’ within practice, mirroring an equally rapid ascendancy in theory as the ‘new orthodoxy’. Available pay trend data suggests that organizations in the private sector especially are attempting to use pay systems to deliver outcomes of strategic value.
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