April 12, 2015
How does your company structure its salary system? Frankly, many companies don’t even realize there are different methods to crafting and implementing their salary and compensation programs. But the salary structure a company chooses should say much about their compensation philosophy and goals. Choose the wrong salary framework and you could send the wrong message to your employees and to top prospects considering employment with your company.
Let’s take a closer look at the three types of salary structures:
The market-driven structure is one where a pay range is established for each job based on available market data. The upside to this approach is that each position’s pay range is established based on its own “apples-to-apples” market data. The downside, of course, is that the market-driven approach to salary structure can create a large volume of work and upkeep, especially if you have many company staff positions and job classifications.
The broadbanding structure is one in which a large group of jobs are banded together. Consequently, the salary range for these positions can be very broad, typically from 80% to 150% of the median. The upside to the broadbanding approach is that it encourages and promotes career movement –up, down, and laterally – that can benefit both the employee and the company. (Under the broadbanding structure, pay increases often accompany many of these career movement changes.) The downside to the broadbanding method is that pay can quickly become inflated and you may end up overpaying employees for skills they no longer use, or that no longer add value to the company.
The final method is the traditional pay structure. Traditional salary structures typically include enough pay grades to cover all jobs, from entry level to executive. In the traditional structure, top-to-bottom pay ranges can span between 40% and70%. Mid-points in the traditional salary structure can vary between 10 to 20% from one pay range to the next.
With any of these salary structures, a robust market pay study should be completed before implementation. Once established, the chosen salary structure should be reviewed bi-annually. If you need assistance, contact Total Reward Solutions today at 317-589-8529. We can help you review, update or implement the best salary structure for your company.