Creating a Market Competitive Salary Structure

COMPLETING THE SALARY STRUCTURE

At this point the salary structure consists of a horizontal dimension and a vertical dimension, with a pay-policy line derived from the scatter plots of jobs. You could plot every job in the organization on the pay-policy line to determine its salary. For the sake of convenience and practicality, most salary structures group data on both the horizontal and vertical axes.

• On the X horizontal axis, group jobs into pay grades.
• On the Y vertical axis, group pay rates into ranges.

Salary Grades

All jobs may be managed to their own unique market value and range. They can also be managed to unique ranges within grades. However, a simplified salary structure is easier to administer having one range per grade (for a similar labor market). This means grouping jobs that are of a comparable level together in a hierarchy of “grades” for compensation management purposes.

A salary grade consists of a group of jobs that have been determined by job evaluation to be of a comparable level for compensation management purposes.

Using grades is a cost-effective approach for large organizations to make salary structure related business decisions. Dealing with 10 salary grades rather than hundreds of job rates can simplify a very complex process. Without a formalized process, even small changes in essential functions may require changes in salary.

How many salary grades should you use?

The number of salary grades may vary from company to company and typically should be dependent on the size of the organization and the compensation philosophy. If there are few grades, the number of jobs in each will be relatively large, as will the increments from one grade to another. In this instance, they can be referred to as broadbands. If, on the other hand, there are many salary grades, the number of jobs in each grade and the increments between grades will be relatively small.

In the end, most organizations use 10-18 grades for a pay structure. Larger organizations of 5,000 or more employees will use 16+ salary grades for their professional, management, and executive structure. Some structures, of course, contain more grades. When pay structures encompass all job categories for clerical, professional, and management employees, for example, the number of grades will likely increase. Each salary grade has a minimum, midpoint (or control point) and maximum.

The actual decision-making process of establishing salary grades is designed to:

• ensure that the grades align with the organization objectives and the labor market
• place jobs of the same general value within the same salary grade
• ensure that jobs of significantly different value are in different salary grades
• provide a smooth career progression for job families