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The main objectives of any compensation system are to attract, motivate and retain good staff members. Choosing the right compensation system depends on your organization. In choosing your pay structure it is best to group jobs together in ranges that represent similar  internal and external worth. The midpoint or middle-pay value for the range usually represents the competitive market value for a job or group for jobs.

Purpose of a Pay Structure:

Pay Structures should be developed from the organizations mission and business strategy. Strategy must precede structure development. While it is important to be specific about structure features such as the range spread, range width, midpoint progression and so on, the key element of an effective pay structure is its value in functioning as a tool for managing pay. An organization’s pay structure should reflect the way employees’ work is valued.

Multiple Pay Structures:

The organization may decide to have more than one pay structure within the overall structure. The number of structures is primarily a function of the market and the company’s compensation philosophy.

For Example: The ranges for some professionals may call for a separate structure that cannot be force-fit into a typical “corporate” structure.

The organization will need to decide whether it can accept a salary structure with varying percentages between its midpoints.

NOTE: What is seen as a “critical” position to one manager, may not be critical to another. Equity may be difficult to achieve with this approach.

Pay Ranges:

NOTE: The more essential a job is to the fundamental mission of your company, the higher the pay range.

Pay Ranges should be designed to provide midpoints that reflect the “going rate” and are reasonably close to what the market establishes as the minimum and maximum for the job.

NOTE: Minimums that are too low will result in the organization having to pay an employee higher in the range in order to pay competitively. This narrows the position’s long-term earning potential. In turn, a high maximum may provide long-term earnings opportunities that are higher and more costly than what are needed to be competitive.