Pay Slope

Basic Pay Structure

Source: South African Human Resource Management: Theory and Practice
By Ben Swanepoel, Marius Van Wyk, Barney Erasmus

The development of a pay structure is determined by considerations of the organization’s pay slope, the number of pay grades, the range of each pay grade and the degree of overlap between pay grades.

What Does Pay Line Reflect?

Salary line is also known as pay line or wage line. It reflects pay or wage differentials between jobs. The steeper the pay line slope, the greater the differences in pay between jobs.

In the following diagrams, 2 companies pay their lowest level job the same. From this point on, the pay for one job incumbent rose at a sharper rate than the other even though they are both doing similar jobs.

Source: Internal Wage Structure Written By Gregorio Billikopf, University of California

The pay line also reflect the overall pay level of the organization. The following diagram illustrates 2 job incumbents whose differential between the highest and lowest paid job are the same despite the differences in the total pay paid.

Source: Internal Wage Structure Written By Gregorio Billikopf, University of California

Pay Slope

The pay slope refers to the angle, steepness or gradient of the pay curve or wage curve. The pay curve is a curve due to the pay being exponential. The pay data could be considered as the dispersion of job salaries in all the pay grades. The pay curve can be straightened by transforming the pay by transforming the pay data into logarithmic form.

The pay slope can be expressed as a ratio:

(Pay rate for grade 2 less Pay rate for grade 1) / Pay rate for grade 1

It can also be expressed as a percentage:

[(Pay rate for grade 2 less Pay rate for grade 1) / Pay rate for grade 1] x 100

One the factor that affects the size of the pay slope is the number of pay grades. The flatter the gradient, the smaller are the steps between job grades. This helps to show that people are more or less equal in the organization. However it does not encourage people to work harder to earn more. The more the pay grades, the finer the distinction between jobs.

There tends to be more overlap where a pay slope is flatter or with a larger rate ranges, as shown by the following diagram

Source: Internal Wage Structure Written By Gregorio Billikopf, University of California

The fewer pay grades a structure has, the steeper the pay slope will be. However too few grades (steep pay slope) may create internal inequity and employee morale problems because jobs with significantly different job contents and responsibilities may be paid the same pay rate. Not only it costs the organization more, it makes the difference between the lower grades and the higher grades seem even less fair.

This happens in broad banding as the following diagram shows. In broad banding, there may be taller pay ranges within each pay grade. This allows more room for pay increases within a grade.

Source: Internal Wage Structure Written By Gregorio Billikopf, University of California

A general pay slope between pay grades is between 15% to 20%

Is A Straight Slope Practical?

A straight pay slope happens when there is an equal percentage increase in salary between each grade and the next. This means that there is an equal increase in responsibility between each grade and the next.

Although this is ideal, however this may not be practical to implement for the following reasons:

• Companies without a straight pay slope may have to pay exorbitant costs to straighten the slope.
• There may not be an equal increase in responsibility between all grades.
• Pressure on the minimum wage from unions.
• Negotiated pay scales reflect a compromise between union and management, not a theoretical ideal.
• A straight pay curve often conflicts with market trends.

Curved Pay Slope

A pay slope that curve upwards means that the steps between the pay grades get larger the higher up the pay curve you go. This shape of the pay curve is arbitrary and therefore a matter of organizational policy.

Sources:
(1) Expatriate Compensation By Dr. Mark Bussin
(2) South African Human Resource Management: Theory and Practice By Ben Swanepoel, Marius Van Wyk, Barney Erasmus
(3) Industrial Psychology: Fresh Perspectives By Anne Crafford, Alwyn Moerdyk, Petrus Nel, Clare O’ Neill, Anton Schiechter; Lynne Southey