A salary structure is a framework that determines how employees are paid within an organization. It establishes a hierarchy of job grades or pay grades that reflect the value of jobs in the external market and/or their internal value to the organization (UW–Madison, n.d.).
Key Facts
- Definition: A salary structure is a hierarchal group of jobs and salary ranges within an organization. It establishes the pay grades or job grades that reflect the value of a job in the external market and/or the internal value to an organization.
- Market-based: Salary structures are often designed based on market data. Companies use market surveys to determine the pay levels for different jobs in the market and assign them to appropriate salary grades.
- Pay ranges: A salary structure includes a range of pay for each job or job grade. This range typically consists of a minimum and maximum salary. The range represents the span between the lowest and highest base salary an organization is willing to pay for a specific job or group of jobs.
- Pay equity: Salary structures help ensure internal pay equity by providing a systematic approach to determining pay levels for different jobs within the organization. Jobs with similar responsibilities and requirements are assigned to the same salary grade, ensuring fairness and consistency in compensation.
- Performance and development: An effective salary structure allows organizations to reward performance and the development of skills. It provides a framework for linking pay increases to performance evaluations and career progression.
Components of a Salary Structure
- Job GradesJobs with similar pay in the market are assigned to the same salary grade.
- Salary RangesEach salary grade has a salary range that includes a minimum and a maximum salary. A job is paid between the minimum and maximum of its salary grade.
Importance of Salary Structures
Salary structures serve several important functions within an organization:
- Market CompetitivenessThey help organizations attract and retain employees by ensuring that pay levels are competitive with the external market (SHRM, 2009).
- Internal EquityThey promote pay equity within the organization by providing a systematic approach to determining pay levels for different jobs (UW–Madison, n.d.).
- Performance and DevelopmentThey allow organizations to reward performance and the development of skills by linking pay increases to performance evaluations and career progression (SHRM, 2009).
Types of Salary Structures
There are several types of salary structures that organizations can use, including:
- Traditional Salary StructuresThese structures have numerous layers and range structures with a relatively small distance between each range (SHRM, 2009).
- Broadband Salary StructuresThese structures consolidate pay grades into fewer structures with wider salary ranges (SHRM, 2009).
- Market Reference PointsThis type of structure matches every job in an organization to market data to develop a market reference point (Mercer, 2023).
Considerations for Designing a Salary Structure
When designing a salary structure, organizations should consider the following factors:
- Market DataSalary structures should be based on current market data for individual jobs (SHRM, 2009).
- Job EvaluationJobs should be evaluated to determine their relative worth and assigned to appropriate salary grades (UW–Madison, n.d.).
- Organizational CultureThe salary structure should align with the organization’s culture and values (Mercer, 2023).
Conclusion
Salary structures are an essential component of effective compensation programs. They help organizations ensure that pay levels are competitive, equitable, and aligned with organizational goals. By carefully designing and implementing a salary structure, organizations can attract and retain top talent, promote pay equity, and support employee performance and development.
References
- Mercer. (2023, May 25). Types of pay structures – which is best for my organization? Retrieved from https://www.imercer.com/articleinsights/types-of-pay-structures
- SHRM. (2009, November 16). Salary range structure practices. Retrieved from https://www.shrm.org/topics-tools/news/benefits-compensation/salary-range-structure-practices
- UW–Madison. (n.d.). What is a salary structure? Retrieved from https://hr.wisc.edu/pay/salary-structure/what-is-a-salary-structure/
FAQs
What is a salary structure?
A salary structure is a framework that determines how employees are paid within an organization. It establishes a hierarchy of job grades or pay grades that reflect the value of jobs in the external market and/or their internal value to the organization.
What are the benefits of having a salary structure?
Salary structures offer several benefits, including:
- Market competitiveness
- Internal equity
- Support for performance and development
What are the different types of salary structures?
Common types of salary structures include:
- Traditional salary structures
- Broadband salary structures
- Market reference points
How do I design a salary structure?
To design a salary structure, consider the following factors:
- Market data
- Job evaluation
- Organizational culture
How often should I review my salary structure?
Salary structures should be reviewed regularly, typically annually or every two to three years, to ensure that they remain competitive and aligned with organizational goals.
What are some common mistakes to avoid when designing a salary structure?
Common mistakes to avoid include:
- Relying solely on internal data without considering market data
- Creating too many salary grades or pay ranges
- Failing to communicate the salary structure clearly to employees
How can I ensure that my salary structure is fair and equitable?
To ensure fairness and equity, consider the following:
- Conduct regular job evaluations to assess the relative worth of jobs
- Use market data to benchmark salaries
- Provide opportunities for employees to appeal their salary decisions
How can I use a salary structure to support employee performance and development?
Salary structures can be used to support performance and development by:
- Linking pay increases to performance evaluations
- Providing salary ranges that allow for growth and progression
- Offering incentives for skill development and certification