While having a salary structure is not required, having one certainly helps to control costs and plan for the future. From the perspective of a compensation professional, here are a few pros and cons to implementing a salary structure and job grades in your organization.
Let’s start with the bad news first.
Con 1 – Administrative Burden. Yes, someone is going to need to create the salary structure and align current jobs and employees to grades. Someone will also need to monitor organizational and market pay on a consistent basis to make sure that the structure continues to make sense. At the very least, the structure needs to be evaluated on an annual basis to determine whether grades or individual jobs need to be changed, and by how much due to the cost of labor increases. The consistent attention year-to-year does require some work.
Con 2 – Rigidity. For some companies, particularly those in high-tech industries or those that hire very in-demand talent, salary structures can be a recruitment and retention challenge. In these fast-moving sectors, pay is often moving upwards at a faster rate than salary structures typically are updated. If recruiters and managers do not have the flexibility to pay more to attract and retain key talent, salary structures can be restrictive.
However, then the good news!
Pro 1 – Cost Control and Planning. Salary structures provide guidelines for pay decisions. They help to eliminate discretionary increases that are far higher than necessary. Plus, if management knows the minimum and maximum pay for each job, planning for future costs is a whole lot easier. A CEO would find it outrageous to have an inventory of products to sell with no set range of prices for those products. Why would that same CEO not have the same expectation for employee pay?
Pro 2 – Transparency. Seeing where they fall in the organizational hierarchy can be both rewarding and motivating for employees. It helps assure them that they are being paid fairly in comparison to their peers and provides a more visible career ladder. Having a structure also helps to eliminate awkwardness in pay conversations between managers and employees. Managers can point to the market-based salary structure and provide clear information.
Pro 3 – Consistency. Through a salary structure, employees have the assurance that their pay is fair, and management can also be confident that the compensation of individuals performing the same job duties is equitable. Within a tightly packed job grade, there is not a whole lot of room for favoritism or other unfair pay treatment. Another benefit is that new hires already have an assigned grade and therefore are not being brought in at a salary that is inconsistent with others in the same or similar job.
We are interested in hearing other points of view. If you are from organizations that have tried either structured or unstructured pay, are you in favor of salary structures, or do you think they are too restrictive to be valuable – let us know!
How can we help?
Compensation Works can help establish a data and market-driven compensation foundation with well thought out salary structures and pay grades for your organization, ensuring consistency and fair pay practices.