Designing A Base Pay
Structure
Richard I. Henderson
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Chapter lesson
What do you mean by Pay Structure?
Types of Pay Structures
Designing A Base Pay Structure
When you will design A Base Pay
Structure?
What must be included to design a Base
Pay Structure?
Compensation Policy Guidelines
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Chapter lesson
What are the questions and issues to be
consider for to design Pay Structure ?
Pay Structure Design Questions and
Issues
Pay Structure Architecture
Developing Pay Grades
Pay Structure Terms
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Q. What do you mean by Pay
Structure?
The pay policy resulting from job structure
and pay level decisions.
The relative pay for
The average amount the different jobs in the
organization pays for a organization
particular job.
Pay Structure also defined a pay rates for
different jobs within a single organization.
Q. Types of Pay Structures
FLAT ~ Single Pay Rate for a job (ie.,
$6.67/hour, no range)
RANGES ~ Open (range has a min, mid,
max) or Step (defined pay increases or steps
based on time-in-job or performance, usually
automatic)
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When you will design A Base Pay
Structure?
After determining internal equity
relationships among jobs, and
Identifying competitive pay practices in
the market place,
The next order of business is the design
of a pay structure.
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Q. What must be included to design a Base Pay
Structure?
The Architects of the Pay Structure Must:
● Establish a pay policy line.
● Determine if the organization needs more than one
pay structure and why.
● Determine overlap between pay grades.
● Design pay grades using pay grade minimum and
maximum and desired spreads of the range.
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Q. Compensation Policy Guidelines
Decisions that provide guidelines
for the compensation manager to
follow in developing a pay structure
are made at the highest levels of
the organization.
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Compensation Policy Guidelines
THESE POLICY DECISIONS INCLUDE:
● Minimum and maximum levels of pay.
● The general relationship among pay levels.
● Whether or not the pay structure should lead
or lag or lag\lead the market.
● The division of the total compensation dollar.
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Compensation Policy Guidelines
Additionally
Senior management decides how best to
administer its pay policies. How much, to
whom, when, where and how.
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Q. What are the questions and issues to
be consider for to design Pay Structure ?
1) What is the lowest rate of pay that can be
offered and still hire desirable employees ?
2) What is the rate of pay necessary to retain
employees ?
3) Will the organization want to recognize
seniority and merit through the base pay
schedule ?
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Questions and Issues……
4. Is it wise or necessary to offer more than
one rate of pay to employees performing
either identical or similar kinds of work ?
5. What is considered to be a sufficient
difference in base rates of pay among jobs in
a class-series that requires varying levels of
knowledge, skills, responsibilities, and duties.
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Questions and Issues……
6) Does the organization wish to recognize
dangerous working conditions in its base pay
schedule ?
7) Should there be a difference in changes in
base pay progression opportunities among
jobs of varying worth ?
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Questions and Issues……
8) Do employees have a significant opportunity
to progress to higher level jobs ? If so, what
should be the relationship between
promotion to a higher job and changes in
base pay ?
9) Will policies and regulations permit
incumbents to earn rates of pay higher than
established maximums and lower than
established minimums ? What should be
the reasons for allowing such deviations ?
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Questions and Issues……
10) How will the pay structure accommodate
across-the-board, cost-of-living, or other
adjustments not related to employee
tenure, performance, or responsibility and
duty changes ?
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The Need For More Than One Pay Structure
(why should an organization use more than one pay
structure ?)
● There are a number of logical and rational
considerations for having multiple pay
structures that focus on the forces that
influence the actual pay of the various
occupational groups comprising most
organizations.
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The Need For More Than One
Pay Structure…….
● A major reason for using multiple pay
structures is that rates of pay for
more advanced jobs increase
geometrically rather than linearly.
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The Need For More Than One
Pay Structure……
● It is not unusual for large organizations to
have at least three pay structure lines:
● Blue collar manual labor, craft, and trade
workers.
● Nonexempt white collar salaried workers.
● Managerial, administrative, and professional
exempt employees.
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Y= a + bx
Pay Policy Line Pay structure =3
Predicted Salary = $8,000
8
6
monthly
salary 5 Predicted Salary = $6,000
($000) Pay structure =2
4
Predicted Salary = $3000
PAY 3
2 Pay structure =1
1 Job Evaluation Points =
315
40 80 120 160 200 240 280
Job 320
Evaluation
IRWIN Points
©a Times Mirror Higher Education Group, Inc., company, 1997
The Need For More Than One
Pay Structure……
● Some organizations have a
fourth pay structure for their
highly paid executives.
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Q. As a HR Manager of a MNC what are the
general characteristics you have to follow to
develop a Pay Grade Systems?
1) Each grade provides for a range of pay.
2) Within a pay grade range there is a minimum,
a midpoint, and a maximum pay.
3) The range from the minimum to the maximum
within a single pay grade may vary from 20 to
100 percent. The most common range is
from 30 to 50 percent.
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General Characteristics
Of Pay Grade Systems…..
4) The number of steps within a grade may
also vary. Grades having steps will
normally have from 3 to 10 steps, with 6 to
7 in-grade steps most common.
5) There is a direct relationship between the
rate of increase per step and the number of
steps within a grade.
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General Characteristics
Of Pay Grade Systems
8) The requirements of the
organization will provide answers to
the correct number of grades, the
number of steps within grades, and
their rates of progression within and
between grades.
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General Characteristics
Of Pay Grade Systems
The number of pay grades to be
included within a pay structure varies
with the circumstances--there is no
right number.
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Pay Structure Terms
● Single-Rate Pay Grade
● A flat rate structure that appears in
organizations in which pay rate
negotiations between management
and unions are common practice, in
some small organizations, or in
industries using skilled craftworkers.
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Pay Structure Terms
● Multiple-Point Pay Structure
● Some organizations that use
point-factor job evaluation plans
establish a rate of pay for every
possible point score.
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Pay Structure Terms
o Comparable Worth
The concept that male and female jobs that are
dissimilar, but equal in terms of value or worth to
the employer, should be paid the same
Pay Structure Terms
● Broadbanding
● The grouping of jobs of significant
differences or worth or value
within one band or pay grade.
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Pay Structure Terms
● Shadow Range:
● when Internally evaluated job is out of line
with market demand rate.
● Example: exotic job that means
information technology field jobs.
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The end
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