12 Jul 4 Types of Pay Structures to Consider
Pay structures can help companies move towards greater pay transparency. They can also be used as both an administrative tool and communication tactic for helping your employees understand potential career paths and pay equity. By strategically implementing the appropriate pay ranges for your organization, you can allocate funds in the ways that best support your overarching goals.
There are many pay structures to choose from, each of which serves a distinct purpose in specific organizations and areas of business. The most common types are outlined below in a brief guide to help you determine which is best for your company’s needs.
1. Market Ranges
Best for small companies just starting out, this method matches structures directly to market. It works well when the company has many hybrid jobs, but it does have some disadvantages. For instance, market values can be highly volatile. It requires high administration and may be difficult to communicate without confusion.
With this mathematical method, a base pay policy line is created by regressing job evaluation points with external market rates. Each job is evaluated using a point factor methodology and assigned a pay range. It’s appropriate for companies that value internal equity over market-competitive rates, and also works well in small start-ups. The continuum method is also practical for any company who wants to move subjectivity from the pay process. Nonetheless, its formulaic approach isn’t flexible and can cause frustration in managers and staff.
3. Single Rate Pay Structure
Companies with a large, developed labor force may be drawn to this simple structure. In it, each job has a fixed rate of pay, and rates are reviewed regularly based on the market, and/or collective bargaining agreements. The approach works well for routine work with little variation in performance, as well as high-commission sales jobs, internships, and contingent labor. While it requires a fairly high level of administration, it’s easy to communicate. The downside is that it may prompt some workers to leave for slightly higher pay elsewhere.
4. Job Family Pay Structure
The job family pay structure uses the same process as the job function pay structure, except that pay is specific for each job. A job structure is created, and jobs are leveled consistently. Support, professional, and manager roles may be on a different structure.
This approach works well for companies in highly competitive markets with a desire to target pay accurately. It can also be used to promote career mobility in the job family. Yet, it is the most administratively burdensome pay structure method.