Employers use salary structure to define a payment range, right from the lowest to the highest pay, related to each salary band or grade. By associating every position with a band or grade, employers can optimally manage employee compensation.
If you are looking for how to create a salary structure, below are a few steps to help you achieve the same. However, some considerations need to be made for the constantly developing international markets.
- Compensation philosophy: Every employer needs to establish their own compensation philosophy. In other words there should be a policy that outlines the market position desired by the employer. The policy should include information like- the target market, appropriate comparators, how to grade the target and so on. A well designed policy will provide important and valuable assistance in developing a salary structure.
- Collect market data: Identify the kind of surveys you would like to perform with your comparators. It is always a good idea to have a minimum of two survey sources. This becomes a little complicated when international markets are in concern, especially in smaller markets and developing countries. It is recommended that the surveys performed should be both sector specific and multi sector surveys. As there would be many jobs that can be found in various sectors and not just in a specific one.
- Benchmark jobs: Benchmark jobs can be easily understood and matched as they are role representative jobs and not position oriented. Sector surveys make a good option for sector specific jobs and for other cases multi sector surveys might be a suitable option.
- Identify your market position: There are several ways of identifying where you stand in the market. One of the ways includes tabulating an average of all the benchmark jobs within the same internal grade or level. Then compare the averages in relation with the number of employees associated with every survey. Next, from the surveys choose a market reference that best suits the company policy. However, survey data are not very reliable for developing countries. A good way of capturing realistic market values is by using the highest and the lowest values.
- Compa-ratio: It is the relation of the market to the survey data. A ratio of 100 indicates perfect compatibility, whereas below 100 would mean a lower position and above 100 would mean more than the market standards. There are various ways of analyzing the data; some of them include grade wise analysis, position wise analysis, etc.Â Irrespective of the approach you choose, the compa-ratio would analyze both the areas that need attention and the ones that are competitive in an organization.
- Budget check: Budget checking is a very crucial step. This step requires you to find out an approximate difference between the market and the present scale. Doing so will help you find out how much the scales need to be increased to be at par with the present market conditions. The integral budget would decide how far you can go to match the ideal.
Above are the first 6 primary steps of building salary structure. The next few steps include:
- Start exercises that will probably repeat several times until the desired results are obtained.
- Once the new scale is built, recheck it with all the important factors. This would help ensure that the scale makes perfect sense.
- The second last step includes getting the new scale approved by the management.
- Explain the salary structure and everything that went into creating it to the staffs and managers of the organization.