The Basics of Multiple Salary Structures
Jason C. Kovac, CCP, CBP, CSCP, Mobile Mini | October 2013
There are a several factors that go into determining the right salary structure. Some companies, though, find it beneficial to have more than one structure to accommodate their critical business needs. But when does a company need multiple structures? This article explores the basics behind making that decision.
Do I Need More Than One Salary Structure?
Pay structure design considerations should be addressed first. Then the company should determine why different pay structures are necessary. To determine if an organization needs more than one salary structure, the following should be examined:
- What is the diversity of jobs found within the company and how does the content of those jobs vary?
- 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.
- Jobs can vary by job level (e.g., clerical, supervisory, executive). Based on learning curves, responsibility and decision-making ability, it is possible to construct multiple structures.
- How diverse is the grading procedure? For example:
- Union-negotiated production jobs may be in an automatic step-rate structure.
- Hourly office jobs may be evaluated using a point-factor plan.
- Management jobs may be evaluated using a market-driven approach.
- How does the organization handle the issue of internal equity versus external competitiveness?
- 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:
- Compensation philosophy
- Business units
- Career development and promotional opportunities.
Illustrating Different Pay Structures
The following examines three pay structures and their relationship to each other.
- 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 because of 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 has the highest level of acceleration because of 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.
Piecing It Together
Using multiple pay structures is not right for every company and shouldn't be implemented just for the sake of doing it. There should be sound business considerations behind the decision. When using more than one pay structure companies need to take into account a number of factors, including business and compensation philosophy and how the organization is structured.
About the Author
Jason C. Kovac, CCP, CBP, CSCP, is the compensation manager for Mobile Mini and a former practice leader for WorldatWork.
Read the October edition of Compensation Focus.
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