Benefits and Compensation

The 4 Approaches to Pay Structure

For companies that have cut back on pay for a few years (who hasn’t?), it’s time to take a look at your status, says Daniels, who is senior consultant at Keating Advisors, LLC. You may well have fallen behind or your structure may no longer align with your strategies.

Review Your Current Base Pay Structure

Ask yourself these questions, says Daniels:

  • Does your current base pay structure support both market competitiveness and internal equity?
  • Do you have enough, too few, or too many salary ranges?
  • Are the current range spreads (difference between the minimum and maximum) the right width for your organization’s approach to compensation?
  • Does your current base pay structure have clear level definitions?
  • Do employees know how to move up in the structure?
  • Is your base pay structure linked to the organization’s desired market positioning?
  • Is the base pay structure adequately integrated with other programs (e.g., performance management, career planning)?
  • How do employees feel about your program?

Common Types of Base Pay Structures

Daniels says there are four basic types of pay structure, each with distinct advantages and disadvantages:

Type

Design Characteristics

Advantages

Disadvantages

Traditional
Graded Pay
Structures

– Range spreads 20–50%
– Smaller midpoint progressions (5–10%)
– Many pay grades

Very supportive of internal equity (jobs in same grade are paid similar rates)

Employees tend to hit max before being promoted, can restrict paying market rates for specialized positions

Broadbands

– Range spreads 80–120%+
– Few pay bands

Wide bands provide utmost flexibility

Lack of structure, lack of clear band definitions, often result in under- and overpaying for some jobs

Step
Structures

– Range spreads 20–50%
– Smaller midpoint progressions (5–10%)
– Divided into small equal steps

Easy to administer and automate, costs are very predictable

Very limited ability to reflect performance, progression through steps is usually based on tenure

Market-Based Structures

– Range spreads 30–70% (narrower at lower levels, widening as level increases)
– Market-data- driven midpoint progressions (usually between 15–25%)

Based on objective market data, provide both flexibility and ability to maintain internal equity

Require more frequent analysis of market data to stay up-to-date


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You May Need More than One Base Pay Structure

Sometimes, organizations require more than one base pay structure to suit their employee populations.

The reason one might develop various pay structures is because the market paylines for a given group of positions support a faster pay progression (e.g., the rate at which pay increases for executive positions tends to be higher than for nonexempt positions) or very different base pay for positions at the same organizational level (e.g., program coordinator and IT coordinator).

Some common examples of groups that may require a separate base pay structure include:

  • Nonexempt Positions
  • Professional & Management Positions
  • Information Technology
  • Licensed Medical Positions
  • Executives

Updating pay structures—just one of every comp manager’s challenges. How about just the wagehour piece? What’s the regular rate for overtime? Prevailing wage? Mobile devices after hours—the list of ways you can get into trouble seems endless. How do you really know if your managers and supervisors are following your guidelines? There’s only one way to find out what sort of compensation shenanigans are going on—regular audits.

To accomplish a successful audit, BLR’s editors recommend a unique checklist-based  program called FLSA Wage and Hour Self-Audit. Why are checklists so great? Because they’re completely impersonal, and they force you to jump through all the necessary hoops, one by one. They also ensure consistency in how operations are conducted. And that’s vital in compensation, where it’s all too easy to land in court if you discriminate in how you treat one employee over another.

Experts say that it’s always better to do your own audit, and fix what needs fixing, before authorities do their audit. Most employers agree, but they get bogged down in how to start and, in the end, they do nothing. There are, however, aids to making FLSA self-auditing relatively easy.

What our editors strongly recommend is BLR’s FLSA Wage & Hour Self-Audit Guide. It is both effective and easy to use and even won an award for those features. Here’s what customers like about it:

  • Plain English. Drawing on 30 years of experience in creating plain-English compliance guides, our editors have translated the FLSA’s endless legalese into understandable terms.
  • Step-by-step. The book begins with a clear narrative of what the FLSA is all about. That’s followed by a series of checklists that utilize a simple question-and-answer pattern about employee duties to find the appropriate classification.

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  • Complete. Many self-audit programs focus on determining exempt/nonexempt status. BLR’s also adds checklists on your policies and procedures and includes questioning such practices as whether your break time and travel time are properly accounted for. Nothing falls through the cracks because the cracks are covered.
  • Convenient. Our personal favorite feature: A list of common job titles marked “E” or “NE” for exempt/nonexempt status. It’s a huge work saver.
  • Up to Date. If you are using an old self-auditing program, you could be in for trouble. Substantial revisions in the FLSA went into effect in 2004. Anything written before that date is hopelessly—and expensively—obsolete. BLR’s FLSA Wage & Hour Self-Audit Guide includes all the changes.

You can examine BLR’s FLSA Wage & Hour Self-Audit Guide for up to 30 days at no cost or obligation. Go here and we’ll be glad to arrange it. 

1 thought on “The 4 Approaches to Pay Structure”

  1. Couldn’t agree more about having more than one pay structure, especially for large companies with so many different types of jobs all under one roof (perhaps figuratively!). I never understand why some employers are so wedded to using one and only one structure.

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