Single or Multiple Salary Structures?

Two Broad Decisions

There are 2 broad decisions to be made in designing salary structures:

  • The number of salary (pay) structures.
  • The types of salary (pay) structures.

Single or Multiple Salary Structures?

To answer the question of how many pay structures is required, we will have to answer the following questions on the following areas:

  • The size of the organization.
  • Diversity of the jobs in terms of functional areas and job levels.
  • Diversity in the way job grades are determined for different group of employees, for example the Union may negotiate that step-rate pay structure be used for production jobs.Hourly office jobs may use a point factor plan. Management jobs may use a market-driven approach.

Thus, consideration is given to whether job evaluation is formal or informal. If it is formal, then which method. The ranking, classification, factor-comparison and more often point-factor method can be used to derive a single job cluster for the entire organization. For organization using market-pricing where the horizontal axis is market rates the use of multiple structures may prove desirable.

  • The pay needs of executives and the basis on which they expect those needs to be fulfilled is quite different from those of rank-and-file employees.

Organizations with more than one pay structure most commonly have separate structures for exempt and non-exempt groups of jobs. Exempts are often divided into professional and managerial groups, and non-exempts into production workers and office staff. There seem to be two reasons for these breakdowns. One, it may be difficult to compare these different types of jobs, in which case the horizontal axis of the scatter diagram is not useful. Second, and more important, the slope of the pay-policy line for these groups may be very different. At opposite extremes would be the blue-collar workers, with a very flat slope, and the managerial group, with a very steep slope. Further, the pay-policy lines will start and stop at different places, so that there will be little overlap between them.

  • The pay rates for more advanced jobs increase geometrically rather than linearly.
  • The need to develop a separate pay structure to address “hot jobs” that the business need to pay competitively.
  • Orgnizational culture: A complex plan may be out of place in an organization where the jobs are relatively simple and repetitive and where the general educational levels of job incumbents are not very high.
  • How the project is managed. The employer may decide not to evaluate all jobs in the organization at one time, It may choose to do by related group or cluster of jobs, for example manufacturing, technical or administrative.

In general, at least 3 pay structures are necessary for large organizations: one for top management; a second for other officials, managers, and high-level professionals; and a third for all the other personnel.

Another 3 pay structures could be (a) blue collar manual labor,craft and trade workers (b) nonexempt white collar salaried workers (c) managerial, administrative and professional exempt employees. There may be a fourth structure for the highly paid executives.

Each of these 3 pay structures may require its own separate job evaluation system and performance appraisal system.

Salary Formula 3A

Source: World at Work

Attention must be given to the serious problem of discrimation. If one or two of the job clusters contain contain all or many of the female, minority-dominated or older aged, then having multiple pay structures. All job clusters that constitute a pay structure need to be examined for their sex, minority and age composition.

Statistical Method to Avoid Multiple Pay Structures

A pay structure using arithmetic progression will produce a straight pay policy line. Geometric progression where pay rates vary by some constant rate of increase will produce a curved pay policy line. To display geometric progression in a straight line a logarithmic scale is used.