11 December 2018

In today’s fast-moving and complex workplace are salary structures still relevant?

The pace of business change and the dynamic demand for talent leads many to question whether deploying salary structures can still add value or are the too time consuming and bureaucratic waste of time?

Why do we have Salary Structures?

Salary structures provide a framework to manage base pay which is traditionally the foundation of the economic contract between employers and employees. They have been around since the 1950’s and 1960’s and help to make sense of external market pricing and internal peer relativity and provide governance and transparency over who is paid what. When designed well they can help an organization to bring to life its reward values and control compensation cost whilst meeting employees demand to be paid fairly. This all sounds eminently sensible. But salary structures inevitably require you to organize individuals into similar levels of responsibility and impact on the organization so you can assign them to salary grades, and that is where it gets difficult.

This organization of individuals into similar job levels has traditionally been done by job evaluation which provides an analytical process to size and compare jobs. And it is job evaluation that is causing many issues with the deployment of salary structures in today’s fast moving business environment.

The perils of job evaluation

 One issue is that job evaluation systems are not maintained and end up being a onetime tool to aid the creation of pay programs. Once created, due to the bureaucratic effort involved, they have a tendency to become static which means they can over time loose relevance, hence the criticism by some that their job evaluation system is archaic. When implementing this invaluable source of insight into jobs you need to ensure you build in processes for maintaining them so they remain agile.

The other key criticism is that job evaluation does exactly what is says on the box – measures jobs and not the individual performing the job. In today’s complex workplace often the skills an individual brings to the job make a big difference to the level of contribution and therefore market value of the employee. Which is why some organizations have adopted broadband pay structures rather than traditional salary step structures. Broadband frameworks emphasize external market comparison rather than internal equity with a focus on horizontal opportunities rather than hierarchy. Some also deploy contribution-based zones within these that segment bands into zones of competency to recognize individual contribution.

So whatever approach to job evaluation you adopt you need to make sure it can easily be adapted to meet future business needs and is appropriate for the way in which you deploy talent.

One size fits all

When implementing salary structures, you need to be open to the fact that it may not be relevant to shoehorn all employees into the one framework. Due to the increasing diversity of our workforces different roles may be performed by different types of talent. Sometimes to get work done you have to buy in specific skills from the market, but that requirement may be short term and you are unlikely to be able to offer career progression in the longer term to these highly skilled employees. In this case a single rate of pay aligned to the market may work. Or you may need specific unique skills that are learned on the job internally and cannot be bought in from the external market. Here a lower starting pay that increases incrementally as individuals gain the required expertise may be relevant. So it’s important to understand where pockets of talent exist and how to segment and align your reward approach.

There are some compelling examples of innovative approaches to salary structures that work for the business. Buffer, the social media management platform, opted to publish publicly salary information on every employee. Salaries are determined using a salary calculation formula that has been adapted over the past four years. Most importantly they use this approach to reinforce the company value of transparency. Gravity Payments took another approach, implementing a $70k minimum wage in order to alleviate the distraction that pay can cause and also reinforce its values. Whilst these might be quite extreme examples that would be hard to apply to a large organizations with many years of hereditary salary structures they do highlight the importance of aligning to company culture and business strategy and talent requirements.

Can it help Equal Pay?

One area where salary structures can add value is ensuring pay equity. A transparent pay structure can give employees confidence that their pay is fair and non-discriminatory. But you do need to consider whether they carry any inherent bias. The first place to look is your job evaluation framework to make sure it avoids any bias due to historical division of labor based on gender roles so that it can assess roles in a fair and consistent manner, and judge each role using the same gender-neutral criteria. Then you also need to question whether the market data you are using carries inherent bias for the same reasons recent equal pay legislation in the US that ban employers from seeking information about applicants’ compensation history was introduced. Even though market data can be a material defense when it comes to an equal pay claim, ultimately it is sourced from other employees’ salaries that may have pay inequity built in and therefore may carry inherent bias.

Value Add

Despite all these potential pitfalls transparency is such a critical part of the employee engagement equation when it comes to base pay that salary structures are critical. The trick is to provide a framework that can reflect your own organizations business strategy and talent requirements. Then ask yourself two key questions; How agile is it? And are they free from any inherent bias?

Posted by Ruth Thomas

Industry Principal, Curo.

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