How to create a Pay Structure

Memory Nguwi / Posted On: 23 September 2020 / Updated On: 21 October 2021 / Compensation and Benefits / 37

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How to create a Pay Structure

Introduction

A pay structure is a series of job grades showing the minimum, midpoint and maximum salary for each grade. The pay structure allows the organisation to reward people according to the value attached to jobs of equal value. This is why there is a minimum and a maximum salary for each grade. It is important to remember that a pay structure is a product of a job evaluation exercise in most cases. It is possible to develop a pay structure without doing a job evaluation using market pricing. In that case, jobs can be grouped based on market salary data trends.

 

The midpoint is what is also referred to as a pay spine. Put differently the midpoint is the organisation's competitive market salary for each grade. Let us say your organisation is in the process of developing a pay structure, it has several options in terms of the target market position for pay. Some organisations may want to target the 25th percentile, 50th percentile{median} or the 75th percentile {upper quartile}. As to which market position to target, it is a matter of choice guided by what the organisation can afford. An organisation can decide they want to target the 75th percentile or the 50th. Here there is a need to balance between the need to attract and retain talented employee on one hand the need to have a sustainable staff cost structure. You must be careful how you pay people within the pay range.

 

The midpoint of the pay range should be reserved for your top performers. People who have shown that they can consistently give value to the organisation. It is a waste of resources to pay poor performers competitive salaries as reflected by your grade midpoints. The minimum salary in a grade reflects the minimum salary the organisation is willing to pay for roles in that particular grade. People paid at the minimum are new to the role, less experienced and or have not reached the right level of performance. It is advisable to pay all new employees joining your organisation close to the minimum of the grade, and only move them towards midpoint as they give more value to the organisation. The maximum salary per grade. This salary is rarely earned by anyone if you are managing your salary structure properly. This salary is reserved for rare talent. This means that anyone being paid close to the maximum is top-notch talent.



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