Why do some companies have more than one salary structure? What are the critical business needs that dictate more than one salary structure?
Determining the Number of Pay Structures
After addressing pay structure design considerations, the company needs to determine how many different pay structures are necessary. To determine if an organization should have more than one salary structure, the following items need to be examined:
What is the diversity of jobs found within the company and how does the content of those jobs vary?
O Jobs can vary by functional area (e.g., nursing, engineering, maintenance). If one functional area has “hot skills,” or if the company has determined one functional area is more valuable, multiple structures may be used.
O Jobs can vary by job level (e.g., clerical, supervisory, executive). Based upon learning curves, responsibility and decision-making ability, it is possible to construct multiple structures.
How diverse is the grading procedure? For example:
O Union-negotiated production jobs may be in an automatic step-rate structure.
O Hourly office jobs may be evaluated using a point-factor plan.
O Management jobs may be evaluated using a market-driven approach.
How does the organization handle the issue of internal equity vs. external competitiveness?
O To balance internal equity against external competitiveness, separate structures may be developed to address external competitiveness issues (e.g., nursing, IT, “hot skills” jobs).
What is the company’s culture and how does it affect the number of pay structures required?
What are the company’s business goals and philosophies? Also consider the company’s:
O Compensation philosophy
O Business units
O Career development and promotional opportunities.
Figure 1 shows examples of three different pay structures and their relationship to one another. In this example:
The clerical, technical and operational structure is relatively flat to correspond to the learning curve needed for those types of positions.
The slant of the professional/management structure is more accelerated than the clerical, technical and operational structure due to the responsibilities of each position. Also, the minimum of the professional/management structure can begin at the midpoint of the clerical, technical and operational structure to illustrate overlap and possibly a regression from within strategy.
The executive structure slant ahs the highest level of acceleration due to the challenges and responsibilities of the positions, as well as the market value. In this case, the minimum of this structure is right around the midpoint of the professional/management structure to illustrate overlap and possibly a progression from within strategy.
Figure 1: Example Pay Structures and Diversity of Jobs
Finding the Right Fit
Not all companies will use multiple structures. In the example provided, the organization decided on three separate structures based on job level work, but another company might have determined that this was not the right move. The decision to use multiple structures within a company is usually based upon business and compensation philosophy, and on how the organization is structured.