A competitive compensation structure is an essential part of attracting and maintaining talent. Not least is this the case for U.K. employers, where studies show Brits are more compensation orientated than their European counterparts. So, have you considered the different compensation structures available to your business?
Also known as a ‘spot salary’, the individual pay rate assigns a specific salary to each role within the organisation. This structure is often used in low-skilled occupations in the form of an hourly rate.
This system is very rigid, and the employee is offered little room to improve their salary without promotion. The system is administratively simple to implement, and business outgoings can be easily forecasted.
However, employees are unlikely to feel as motivated under this system, especially if they are not aiming for promotion. Ultimately, a spot salary is unlikely to motivate workers looking to build a career in your company, but works well for simple jobs.
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Broadbanding uses a small number of pay bands, maybe just four or five, generally centred around a salary midpoint. Each role is assigned to one of these bands, with employees working up the band as they gain experience in the role. Salaries can also be boosted by high performance. This way employees can increase their wages, whilst remaining in the same position. What makes broadbanding stand out is the large range of salaries possible within one band. For example, a pay grade may have a salary midpoint of £50 000. The bottom of the grade may be set at £40 000, but employees can top out at £100 000.
This gives managers large influence over the compensation of each employee, allowing them to reward hard workers. This encourages employees to grow in the role. However, this structure risks workers´motivation when moving roles. With so few bands, employees may remain in the same pay grade, even after taking on more challenging work. Additionally, large organisations will struggle to ensure the system is implemented equally across departments. Therefore, this scheme is ideal for smaller, agile businesses such as start-ups.
This compensation structure employs a larger number of bands with smaller salary ranges within each band. Every role is assigned to a band, with the range within a band much smaller – likely up to 30%. Within each band there are then incrementally increasing pay points, usually based on loyalty. However, with narrower pay ranges in each band, more ambitious employees will need to move up the bands to maximise their income.
The route upwards in the organisation can be clearly linked to the bands. In this way, pay spines effectively communicate to workers how they can improve their salary. However, it offers less room to managers to reward high performers. By rewarding loyalty above all else, a pay spine risks demotivating newer, hard working staff. Due to its simplicity, this structure is common across large organisations.
Job families work by grouping together similar roles with the same competencies into ‘families’ within the organisation. Generally, family grouping is done according to a logical career progression. For example a marketing assistant and marketing director will be placed in the same job family. According to experience, loyalty and performance, pay is differentiated within each family.
Each family then uses one of the compensation structures above. This system is useful as it allows the organisation flexibility to fulfil each departments’ needs. For example, in sought-after or highly specialised progressions, more competitive pay may be needed.
Identifying a pay structure is only the first step. Employers must also assign figures to their scheme, considering industry, location and experience. Furthermore, employees are increasingly considering other aspects of their compensation too.
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