The document discusses the construction of pay structures based on individual contributions, focusing on merit pay systems and pay-for-knowledge programs. It outlines various compensation strategies, including performance-based pay, skill-based pay, and competency-based compensation, emphasizing the need for organizations to adapt their compensation systems to better align with employee performance and skills. The importance of integrating effective performance management with compensation management is highlighted, along with the steps to develop a competency-based compensation framework.