Pay structures set out salary ranges for each position and reveal a company’s compensation philosophy. They are influenced by industry and competing salaries, and include base pay, incentive and merit programs. Incentive pay is used to motivate employees to perform better.
Every company, business or organization that pays workers has some form of pay structure. These documents, typically produced and maintained by human resources (HR) departments, set out salary ranges for each paid position. The configuration and amount of remuneration depends on the specific tasks to be performed within each position. The pay scale for workers at each level includes the minimum and maximum amounts outlined in the structure, and pay variations on the scale often take into account skill level and experience.
A company’s compensation structure reveals its compensation philosophy. The two most common types of compensation structures are the internal capital structure and the compensation hierarchy. The internal equity method of determining compensation uses a grid to ensure that each position is compensated based on the pay of the positions above and below it on the grid. With a hierarchical compensation structure, the prevailing market rate of pay is taken into account with each position and the payout on the structure increases with level of experience and responsibility.
A pay structure is influenced by a company’s industry and the salaries paid to employees in competing industries. In most cases, positions within a company with similar responsibilities and functions will offer competitive pay. It is possible for a position with the same title and function to have a different compensation structure in different industries. For example, an accounting specialist working at a large technology company can do much more than an accounting specialist with a small start-up business or a mom and pop company.
In most cases, a compensation structure is comparable in similar industries. It is important that compensation is competitive in order to attract and retain the best employees for the positions. Workers will seek employment with higher-paying companies unless other attractive perks or perks are offered.
The compensation structure may include an employee’s base salary as well as any incentive and merit programs. Base pay can be derived from a fixed salary or an hourly rate. Incentive-based and merit-based compensation are included in these structures and can vary based on employee effectiveness. In a performance-oriented environment, employees can significantly increase their earnings by meeting and exceeding company-set performance goals.
Incentive pay is often used to motivate employees to perform better. This type of compensation is common in retail environments. Employees who successfully sell more make more.
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