Pay structures within an organization. It can be linked to employee appraisal. Compensation is effectively managed if performance is measured adequately.
Employers base compensation on several factors. Some companies get together and carry out salary surveys. The surveys help them to determine what the market rate is for a job. This data is then compiled and sent back to the participants.
Alternatively, other employers look at pay and benefit packages for certain positions on the Internet. There are a range of sources that provide various reports on the base compensation - typically self-reportes by employees.
Employers structure their pay and benefits packages to attract the best employees. Employee benefits and other perks all constitute what makes up the company's base compensation. If a company paid minimum wage but offered overtime pay and profit sharing then this would mean employees would benefit from working longer hours and could profit depending on the success of the business.