Certain policies must be formulated before a successful compensation system can be developed and implemented. These policies are strongly influenced by the organizations objectives and its environment. Compensation policies must deal with the following issues:
- Minimum and maximum levels of pay _ taking into consideration the worth of the job to the organization the organization ability to pay, government regulations, union influences and market pressures.
- General relationships among levels to pay e.g. both senior management and operating management and between operative employees and the supervisors.
- Division of the total compensation i.e. what portion goes into base pay and into benefits.
Organizations in addition make decisions concerning how much money will go into pay increases for the next year, who will recommend them and how raises will be determined