Types of Salary Structures

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Organizations develop salary structures to remain competitive, manage expenditures and reward employees fairly. Salary structures may have multiple steps and pay grades, or they can be relatively simple. Each organization develops its own system for paying its employees, but several distinct types exist. Three common salary structures are the traditional, broadband and step pay structures.

Sticking with Tradition

  • Traditional salary structures usually have many narrow salary ranges and multiple grades, with separate structures for each type of employee. These structures are often based on specific job functions or occupations. For example, nonexempt employees will be in one structure, salaried employees in another structure and executives in a third. For each job function or occupation, the traditional structure might have as many as 10 salary ranges and 10 grades, with a different salary amounts for each. The traditional salary structure offers flexibility but also has controls, and works well in relatively stable organizations. However, managers have less discretion to give pay raises with this system.

Broadbanding Salaries

  • In the broadband salary structure, employees are grouped by type of job, such as administrative, professional, management and executive, rather than being broken down into multiple categories within a job type. This system offers flexibility and guidelines, but features fewer strict controls. Broadbanding has few ranges but they are wide, and salaries within the range may vary as much as 80 to 200 percent, according to human resources firm WorldatWork. The federal government typically uses the broadbanding system, according to the Strategic Compensation Policy Center. Career banding is a variation of broadbanding, with limited structures and few ranges but wide variation. The Strategic Compensation Policy Center notes that salaries may vary as much as 150 percent within the range.

Stepping Up

  • The step structure is more likely to be used when internal equity is important and differences in performance levels are difficult to assess. Step structures are more rigid than the other two systems, and managers have little discretion in giving raises. Unlike a traditional or broadband system, step structures tend to be specific to a job. For example, a system may be set up for payroll clerks I,II and III, each with a salary range. Larger organizations that use step structures are likely to have wider salary ranges. WorldatWork notes that ranges in step structures are typically 20 to 40 percent. The health care and social assistance industries tend to use step structures, according to WorldatWork.

Playing the Market

  • Market-based salary structures are, as the name implies, based on data obtained from the job market about pay ranges for similar jobs. This type of salary structure has a range for each distinct type of job. The pay ranges are typically narrow to keep them in line with the external job market. The organization conducts or pays for a salary survey and bases its salary ranges on the results of the survey. In October 2012, WorldatWork reported 64 percent of organizations used market-based salary structures. Consulting, professional, and scientific and technical services are the organizations most likely to use market-based salary structures.

Other Perks

  • A salary structure sometimes includes other rewards in addition to the actual paycheck. For-profit organizations might offer profit-sharing options. Long-term incentives might include stock in the company or cash options, and are given to employees who achieve long-term performance goals. Annual incentives function in much the same way, but the focus is on achieving annual objectives only. These might include cash bonuses and profit sharing. Recognition awards may or may not be monetary. Non-cash incentives include reserved parking spaces, club memberships, meals and similar perks.

References

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