Salary structures in compensation systems

by on June 25, 2009 · 0 Comment POSTED IN: HR Info Center

The V-shaped structure in your employee compensation systems allows for differences in responsibility, seniority, and rarity

Employee compensation systems ask this question” How much is our actual employee pay in job X?”

Our actual employees in this role paid below the minimum, in which case, we have recommend bringing them up to the minimum of the range immediately. Those are people you’re at immediate risk for losing due to pay issues.Are they above the maximum? Generally speaking, we do not recommend decreasing salaries. We do not recommend decreasing salaries. But we do recommend red circling them or freezing their pay. Eventually, that maximum will catch up to a frozen employee’s pay level at which point, they’d be eligible for a salary increase again.

V-shaped salary structure in compensation systems
When creating salary structures in your compensation systems, create a V-shape structure. The left hand side of the V represents the minimums of the range. The right side of the V represents the maximums of the range. The arrow up the middle would be the midpoints of the range.

At the lower level then where it says midpoint deferential, that would be our lower level jobs in our compensation systems — our receptionist, our clerical positions. At the top would be our executive positions.

What you find at the bottom is that somebody can learn that job and become fully proficient, fully functional on that job in a matter of hours, days or weeks. The entry level rate needs to be pretty close to the market competitive rate.

The difference in value that we get from receptionist has been with us for six weeks versus six months versus six years is somewhat negligible. So we need to hire them pretty close to that market competitive rate. We tend to cap out that job at an earlier rate because there’s only so much additional value that can be provided in that low level position.

Executive levels in compensation systems
We may promote somebody into an executive role. And they may be a high performer. We may think they’re fully capable of it. But it’s truly a promotion. They’ve never been in this role before.

Accordingly, it’s going to take them months, years to become fully functioning in that job. And so that minimum is created significantly lower to accommodate that years of learning on the job.

At the same time, that executive continues to gain knowledge, continues to gain experience and continues to bring additional value to our organization. And so the maximum is created significantly higher. There’s more room to grow throughout the range.

From the Rapid Learning Institute webinar: “How to Set Pay Ranges That Are Fair and Effective” by Ed Rataj

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