Salary Structures and Pay Delivery

Determining Base Pay Program Costs

While many options exist for implementing a new salary structure and determining the associated costs, three options are typically used.

Option 1: Bring only those employees who are below the new minimum up to the minimum and leave all other employees at their current rate of pay.

While this option represents the least cost to an organization and is just a one-time placement cost, it can cause compression among employees in that longevity and performance are not factored into the employee's placement within the range.

Adjustment to New Minimum

• Identify all incumbents below the new minimum
• Total the actual base salary expense associated with an increase to the new minimum
• Identify when the increase will be effective

Option 2: Bring employees to the same point in the new range that they are in for their current range. Basically, this is the process of moving employees from their old compa-ratio to the same compa-ratio in the new range.

This cost option represents the highest cost to the organization but is typically considered the most fair and equitable option because it does factor in the employee's time in job and performance.

Compa-ratio to Compa-ratio Approach

Option 3: Conduct an internal equity study by factoring in hire date and time in grade.

This type of approach would ensure that all employees are brought to a point that is at least the minimum of the salary range, but prior service in the job within the organization would be used to place each employee at a compa-ratio that reflects experience (and/or performance, if possible). Typically, an organization that takes this approach will limit the adjustment to the midpoint of the new salary range or 100% compa-ratio since that represents the "going rate" for the job.

Internal Equity Analysis

• Determine a common experience level for a fully seasoned employee
• Identify each incumbent's prior experience in job
• Calculate compa-ratio for experience level
• Make adjustments
• Use predetermined guidelines

The cost of implementing a new salary structure can be as simple or as sophisticated as you choose to make it.