Salary Structures and Pay Delivery

SUMMARY

A salary structure delivers fair, equitable, and market competitive compensation within an organization. It provides the framework for how pay will be allocated for a business. Structures support the management of:

• the hierarchy of jobs within the organization
• the competitive market rate and range for each job
• the minimum, midpoint, and maximum value of a job
• the hiring rate or range for each job
• budgeting and cost control
• ongoing salary administration
• career ladders and job families
• legal compliance

There are many different approaches to delivering base pay. Some examples of salary structures that determine pay delivery include:

• Single rate
• Automatic step rate
• Variable step rate
• Pay range (most prevalent in the marketplace)
• Broadband

Organizations may pay for more than just the job that the employee performs. Employees may be recognized for seniority, skills, and/or performance. Most companies will deliver base pay increases through merit increases, but there are many types of base pay increases including:

• merit increases (performance-based pay)
• general increases (cost-of-living increases)
• promotional increases
• step increases
• skill-based pay increases
• knowledge-based pay increases

And, of course, there are many variations that combine different types of pay increases such as a combination of skill-based pay and step progression.

Administering the movement of employees within salary ranges can raise issues. A new compensation plan may cause some employees to fall below the range minimum (green circled employees). Occasionally, employees demoted without a salary adjustment may cause an employee’s pay to be over the maximum of the salary range (red circled employee).

Pay compression may occur for the following reasons:

• first-line supervisors and their nonexempt employees who are paid overtime
• direct sales staff can making more than their manager through variable pay
• existing employees as compared to new hires performing the same job with similar experience
• middle management, who may be squeezed between top management and their senior, individual contributors

Proactive management of the salary plan will help to minimize these types of compensation issues.

The goal should be to design, implement, and maintain the integrity of a company’s compensation plan. A sound compensation program should be:

• Internally equitable
• Externally competitive
• Cost effective
• Legally defensible
• Simple to understand
• Easy to administer
• Flexible and ongoing