Compensation in most cases is rather simple. Most larger companies (at least in the US) use salary bands. These determine the market rate of a certain job description/grades and is based on actual salary survey that's done by professional clearinghouses (such as Radford). These bands are well established for both individual contributor and managers up to the Senior Director/VP level. They have a "gaussian" shape, i.e. there is a median and a few percentiles around it (10%,25%, 75%, 90%)
For example, for "Software Engineers" it starts at "SW Engineer I" (fresh out of school with a Bachelor, $70k) to "SW Engineer V" (seasoned industry veteran with 15+ years, $155k). A SW Engineer director sits at around $195k. These are all US numbers. They are available for other countries too, but I didn't find anything for South Africa.
There are three type of movements:
- The band itself moves. That's either through cost-of-living adjustment and/or supply and demand changes. Hot commodities get more expensive and obsolete jobs get cheaper.
- You move inside the band: That's primarily performance related, if you do well against the expectations for your job grade you will sit above the mean of the band. There is a cap to this, it's exceedingly rare to get paid more than the 75% or even 90% percentile of your band
- You jump bands. That's a "real" promotion. So you go from a Engineer III to and Engineer IV or from Senior Manager to a Director not ONLY in title but in actual HR salary classification. That's typically where the biggest jumps happen.
IMO, the system is not particularly fair as any companies compare salaries behind your back and you don't have access to the same level of information. However, websites like salary.com are a good resource to play around with.
In any case, I'm guessing that 80% of all corporate salaries sit inside the 10%/90% range of their salary bands for their job grade, regardless of whether they are officially using salary bands or not. There are always exceptions for outstanding performance, being in super critical role, promotions lagging behind, etc. but the majority works this way.