An organization needs talented and skilled individuals to build a successful business. Because these talented people are highly sought after, an attractive pay structure is often the key to bringing the best candidates on board. Studies have shown that a fair compensation system is among one of the most effective ways in retaining and motivating employees. When an organization is made up of people who are skilled and motivated, business thrives. Furthermore, salary structures provide a framework for fair and consistent pay policies; they help monitor and control the implemented pay practices and demonstrate possible pay opportunities to the employees. Implementing good salary structures is critical for any company.
Several factors are taken into consideration when designing salary structures. This includes job analysis, and salary surveys. One of the key factors when designing salary structures is the balance between internal and external pay equity. Internal pay equity refers to the employees’ pay compared with those in similar positions within an organization. External pay equity refers to employees’ pay compared with those with similar positions outside of the company. It is important for an organization to maintain a balance between internal and external pay equity. This will help keep employees motivated and promote harmony in the work environment.
Generally, companies employ two types of salary structures- Traditional and Broadband salary structures. Let’s look at each of these in detail.
- Traditional Salary Structures- In a traditional salary structure there are many pay ranges depending on the nature of a position. The new employee generally starts at the bottom of a pay range. He/she will then move up the range over time based on his/her performance appraisal.
Companies using traditional salary structures have many pay ranges depending on the nature of each position. This salary structure provides a hierarchy system in the organization allowing employees to be promoted from one pay grade to another.
- Broadband Salary Structures- Broadband salary structures are more flexible with fewer bands and wider salary ranges. Broadband salary structures are often used in flatter organizations with fewer levels or smaller companies.
In broadband salary structures, the emphasis tends to be placed on career development rather than job promotion.
Salary structures are a necessary part of effective management. They help make sure that the pay levels are externally competitive and internally fair. Salary structures also allow companies to reward performance and development while controlling cost. Well-designed salary structures will attract highly skilled people to your company and keep them motivated within the organization.
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