27 Jun What Are Pay Structures & Why Should Your Company Have Them?
Pay structures, also known as salary structures, define different levels of pay for jobs in reference to:
- their relative internal value,
- external/market value, or
- negotiated rates (i.e., collective bargaining agreements).
A pay structure should include pay rates for jobs within the company, define the range of pay, and be easy to understand and communicate. They are an effective administrative tool used to help managers make better pay decisions, and they can also be used as a communication tool for employees. Thus, they should be easy to understand among to your workforce.
Traditionally, many employers have kept their pay structures hidden. Nowadays, we are seeing an increasing trend towards transparency, and as companies become more focused on equal pay, the shift away from secrecy will likely continue.
Here are a few additional reasons why pay structures are necessary:
- Provide a framework to offer fair/consistent pay for the workforce
- Allow effective budgeting and forecasting for the company
- Support recruiting and promotional decisions
- Communicate and set pay expectations for the workforce
- Can be used to enhance and support overall talent strategy
How Can We Use Pay Structures Strategically?
Many companies target the 50th percentile, and while this may be the easiest strategy from an administrative point of view, it may not be the most impactful strategy for your company. To use pay structures effectively, you must know which rewards your workforce value most. This will allow you to customize the pay mix appropriately. For instance, some employers need to pay lower-level jobs more competitively to compensate for costs of living. Higher-level jobs may not need to be paid as competitively, but can be offered different rewards instead.
Pay structures can also be strategically tied to your talent strategy. When you have transparent pay structures, you provide your employees with visibility into the career path, allowing them to form pay expectations and map out a future with the company.
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