There are many decisions that need to be made when designing your pay grades and salary structures:
1. What is your compensation philosophy? Do you target the 50th percentile for base pay and total cash compensation or something higher/lower?
2. What is the range spread as you progress from lower-level jobs to executive level jobs?
3. What are the midpoint progressions from the lowest grades to the highest?
4. What do you use to assign pay grades? Market data only or a combination of market data and internal equity?
5. What do you label the pay grades? Are you staying with the labels that have always been used or using something different to signal to the users that a change has occurred? How will you explain the change?
6. Are your current pay grades and base pay ranges and target incentives working? Can you attract and retain the talent you need to accomplish the company’s goals?
7. Are some jobs (critical workforce segments) more impactful to the company’s long-term success? Do you want to align these jobs to a different percentile in the market to ensure that you are paying more than your competitors for talent?
8. Are you aging your market data to a date like July 1 or September 1? Do you have a lead, lead lag, or lag structure policy?
9. Do you have geographic differentials? How many and why? Is what you have in place today still supported by market data? What are the percentage differences between geographic structures?
10. What is your typical promotional increase for a one grade change? How often do employees get promoted to different jobs? Does it vary by career level?
11. Do you have one pay structure per country? Or do you have more than one pay structure for larger countries like the U.S. and Canada?
12. Do you have different pay grades and structures for sales jobs versus non-sales jobs?
13. Do you have grades and base pay ranges for executive level jobs or are they individually market priced?
14. How often do you adjust your pay grades and base pay ranges? Annually? Two times a year? Every 2 years?
15. How are you sharing your pay grades and total compensation opportunity with employees and candidates? Are the changes you are considering going to be difficult to explain? What is your longer term pay transparency roadmap?
Many employers are doing their annual budget planning this month. Be sure to assess how much your pay grades, salary ranges, and incentive targets need to change so the budget is aligned.
Compensation supports many aspects of the employee lifecycle throughout a fiscal year.
Refresh and realign your pay structures so you are keeping up with how other employers are providing rewards for the right results.
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