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Selecting the Right Salary Structure for Your Organization

Salary structures are the foundation for base pay administration.  The salary structure you determine for your organization will have an impact on your business operations, especially related to talent management and cost containment, so the selection of a compensation philosophy is an important one.

There are four main types of salary structures; traditional, market-based, broadband and step.  According to recent surveys, market-based salary structures are by far the most prevalent type of structure in use today, followed by traditional and next by broadband.

  • Traditional structures have numerous pay grades with small distance between each range.  It is a hierarchal system conducive to promotions between pay grades.  Typical range spreads 20% – 40%, midpoint progression 5% – 10%
  • Market-based structures are based on what other businesses in your industry and or region are paying for similar jobs.  Typical range spreads  30% – 80%, midpoint progression 10% – 15%
  • Broadband structures group several related jobs, such as the administrative staff. A pay range is assigned, to the job group rather than to a job title.  Typical range spreads 80% – 200% and no defined midpoints
  • Step structures use standard progression rates within a pay range for a job in which employees can progress based on seniority and performance.  Typical range spreads 20% – 40%, midpoint progressions of 5% to 10% with defined points (steps) within the ranges.

Other factors in developing a salary structure are job evaluations, management fit, training and communication.

You can also look into alternative structures that are based more on what the employee can do and less on what the job description is such as skill-based pay, competency pay and variable pay.

Before designing a pay structure, you need to consider competitive salary practices, the organizational culture and the organizations budget tolerance for pay levels.  Designs considerations for pay structure include the number of range levels, width of the ranges from minimum to maximum values (i.e., range spreads), midpoint differentials and the degree of overlap between adjacent ranges.  A strategic plan for employee compensation determines how much you want to pay employees and what type of employees you want to attract.  A total compensation plan includes pay scales, reward programs, benefits packages and company perks. A successful strategic compensation plan allows your business to compete in the market for the best employees in your industry.

As a company, it is important to analyze benefits survey data, compensation surveys and salary reports. Having this information at hand allows you to plan a budget, including competitive employee salaries and benefits, which will help you to hire and retain a happy, talented team. At WageWatch, our expert evaluators provide businesses in a large range of industries with accurate and beneficial benefits survey data, compensation surveys and salary reports to ensure that payment and benefits plans are on par with those in the industry. For more information on market compensation data, please call WageWatch at 888-330-9243 or contact us online at (WageWatch.com).