Although what the work companies do and how they do it have shifted significantly, companies' reward and salary structures have remained largely the same; however, a properly designed compensation and pay system can be a strategic tool to enhance a firm's competitiveness. New approaches tie pay more closely to performance, rather than to tenure and entitlement. They encourage organizational performance and enhance a closer connection between employee and organizational goals by enabling employees to share more fully in the rewards and risks of the enterprise. Variable pay, a core element in new pay approaches, also helps companies promote long-term employment security by providing for pay reductions during economic downturns. Two new pay approaches--skill-based pay and group variable pay plans--exemplify innovations in base pay and variable pay. New approaches to indirect pay are widely popular as all companies attempt to contain their benefit costs. In order to implement new pay systems, companies should take the following steps: clarify their compensation goals, assess the company culture, start a partnership between the organization and its employees, and communicate on all levels. New pay systems will not work in all companies. (Contains 14 references.) (KC)