3 Pay Structure Options Used in Today’s Organizations

3 Pay Structure Options Used in Today’s Organizations

Putting the right pay structures in place helps to provide a framework for consistent pay in the workforce, and it can also be an effective budgeting tool for organizations. There are many types of pay structures to choose from, each with their own unique advantages for companies with distinct labor needs. Explore some popular pay structure options to see which is right for your organization below.

1. Traditional Pay Structure

The most common pay structure, the traditional approach is an easy way to manage pay. Each job is assigned to a grade and range of pay, and multiple job functions are assigned to the structure. You can have wide or narrow range spreads, based upon the number of grades. Rates are reviewed regularly based on market pay movement and/or internal job valuation. The typical number of grades are 12 to 20 or more. The more grades, the narrower the pay ranges, and thus, the greater the pay accuracy.

Traditional pay structures are best for companies with low to moderate concerns of tracking market-competitive pay. They also work for companies in which the workforce may have a desire to understand relative job value across job functions. This approach can be used to emphasize promotions and career advancement.

Nonetheless, traditional pay structures tend to focus on the job instead of the individual, and may not be a good fit for talent-based companies. They also may not work for organizations with many single incumbent positions or hybrid roles. Finally, they can be overly bureaucratic in fast-moving, agile companies.

2. Broadband Pay Structure

The broadband pay structure mimics the traditional pay structure approach, except there are fewer grades (usually just three to six). Ranges are very wide – as much as 100% to 300%. Broadband pay structures tend to be used in companies running a lot of projects with a talent-based workforce. A node-based organizational structure is best-suited for this approach. It may also work well in companies that desire pay flexibility based on individual competency development, or situations in which leadership wants to remove the hierarchical structure and promote a flatter organization. Thus, it also fits well in companies that have a significant amount of lateral movement in the career path.

One disadvantage of broadband pay structures is that they require strong, experienced managers who are able to reward, recognize, and communicate with talent effectively. There must also be ample trust between managers and employees. Overuse of control points can begin to mimic aspects of a traditional pay structure, and the approach is not suitable for lower-paid, market-sensitive positions. While there is low administration involved, it puts much more of a burden on manager’s pay decisions.

3. Job Function Pay Structure

A more advanced method, the job function pay structure consists of grouping jobs in to job families, and creating pay ranges that are the same by the entire level across the organization. Support, professional, and manager roles may be on a different structure. It is best applied in emerging markets, and companies with low to moderate concerns of tracking market-competitive pay. It facilitates the ability to pay jobs equitably that perform a similar scope of work, and allows for lateral movement and career mobility.

Job function pay structures require more of an administrative investment than traditional pay structures, and may fail to track the market closely.

 

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