Pay Structure | Are you paying attention?
The framework of every business or organization is its structure and it is practically impossible for any business to function properly without a structure in place.
A properly defined structure gives clear objectives which are very important for any business that seeks to grow. The right structure is an important game player for every business striving for growth, profit, and success. It helps to keep organizational operations running smoothly. It is only right that a company would want its operations to be smooth and this can only be achieved when there is a proper structure in place.
When it comes to the pay operations of a business, the Pay structure is the framework of every business’ pay operations.
One of the biggest tasks an employer is faced with is how much to pay their employees relative to their work input, and also how much to offer prospective employees vying for a position at their company or organization. As an employer, business owner, or HR officer, you’ve probably had conversations about the salary amounts of your employees, what percentage increase is enough compensation for your employees, the pay offer for a prospective employee, and other budding questions.
Well, a pay structure answers all these questions and more. It helps you have a standard mode of operation for salaries and this flexibility can save your business a lot of time, money, and resources.
Pay structures, similarly called salary structures, are systematic and organized tiers of employee salaries divided by job types that have a pay grade. There is a salary range for every pay grade, featuring a minimum and maximum salary amount, with a gradual increase between the minimum and maximum.
Employees usually begin at the lowest pay level and work their way up to the maximum level through outstanding performance, length of service/ experience or other deciding factors. The pay structure forms the basis of every pay operation and contributes to the smooth running and success of every business and behind every successful business is an excellent pay structure.
There are multiple factors to consider when laying out a salary structure. For instance, a business with limited financial resources would a not offer their employees the same pay that large companies offer their employees in the same position. However, other strategies can be implemented that would benefit the employees. This is expressed in the different types of pay structures and further highlights just how important a good salary structure is to any business.
Here, we’ll walk you through the major types of pay structures and also the importance of pay structures and also how to choose the right pay structure for your business.
Types of Pay Structures
#1: Individual Pay Ranges
This pay structure is highly dependent on employee value as it affixes a salary amount based on the job role of each employee. The advantage of this structure is that there is a standard procedure regarding salary which makes it easy to estimate the value of an employee for their job role and work input. On the other hand, this structure leaves little no room for salary progression within the job role. The only option for advancement is through a job promotion which is oftentimes not easy to achieve.
#2: Broadbanding
Broadbanding takes on a different approach from other pay structures and offers a flexible system. This pay structure groups jobs into pay grades and operates on divisions that can be grouped into administrative/ managerial jobs, service jobs, and executive jobs. Each pay grade is assigned a minimum and maximum salary range and it allows for increments and growth within the range. The downside to this is that an employer may offer an employee a maximum salary amount during the early stages of their career and this limits growth or increments.
#3: Market-based
This pay structure takes into consideration the salary ranges offered by different companies through standard market analysis of similar job roles. This structure differs from broadcasting. Market-based pay structure analyzes pay grades for specific jobs and creates a salary range using data from the analysis while broad banding focuses on job types and assigns a minimum and maximum range that allows for increments.
Pay structures are important for the following reasons:
#1: Salary Budgets
A pay structure helps control your business’ expenses by creating a basis for pay decisions. The right pay structures help companies keep track of the money allocated to salaries and regulate the allocation of finances for new employees. Salary ranges guide your financial planning and budgeting processes and help you allocate the right salary amount according to pay grade. Also, knowing where your employees fit against the pay structure informs your pay decisions and allows for the effective allocation of salary budgets. It helps you save money and if not, ensures that you get value for your money.
#2: Transparency, Engagement and Open Communication
Engaging your employees in pay operations by sharing your pay structure with employees and potential employees can boost their efficiency, confidence, and performance in the organization. Employee engagement in the pay structure has its advantages in that the employees feel fairly treated, establish an open conversation about pay, have an understanding of where their role fits into the organization, know how to progress your career and how their contribution adds to the overall effort. They are also aware that a fair system exists to determine both job level and pay grade.
#3: Competitiveness
A pay structure like market-based pay structure, which operates on a market analysis of salary ranges for similar positions, allows employers to remain competitive. Market salary data provides you with the right information you would need to make pay decisions and offer competitive salaries compared to other businesses in the sector. This improves the quality of the employees your business attracts and helps you secure the best candidate for job roles.
#4: Pay Raises
A well-defined pay structure is highly beneficial for calculating pay raises and also in creating fair opportunities for employees to get a raise in their salary. Different pay structures work with different pay grades and having defined and predetermined pay grades that your employees know and understand can promote transparency and ensure fair and reliable opportunities for pay raises.
#5: Motivation
Motivation in the workplace is what drives any employee to succeed at their job. A good pay structure is enough motivation as it informs the employee about what pay structure your business uses and helps them to know the different ways in which they can advance their career to either get a promotion or a salary raise. It allows for an open and honest conversation between you and your employees about what is required to progress their pay grade within the business and this boosts employee performance.
Choosing the Right Pay Structure
It is important to note that the type of pay structure you decide upon for your company is dependent on several factors like the size of your business, the industry your business operates in, the market pay data, geographical location of your business, and other determining factors that would ensure that you end up with a pay structure that is fair, competitive and well-rounded.
You may have considered some or all of these factors but should you have any questions as regards the right pay structure for your business, our team of professionals would love to answer them. Also, don’t forget that pay structures require reviews and modification depending on the business growth, and every time you implement any changes to your structure, you should input it into your payroll software. PrimePayroll offers you the best features if you’re looking for software to use.
