Over the last 70 years, the concept of rewards has become increasingly sophisticated. The resulting challenge for organizations is to integrate all parts of rewards to get more "bang for the buck." But it all typically starts with designing base pay and determining the appropriate pay ranges for each position.

When you’re a small business getting started (or even a large business trying to refine your system), it can be tough to create a system that is equitable for everyone. Drafting solid compensation plans and ensuring your pay ranges are market-appropriate can help you maintain positive bottom-line financial results and attract the right talent to your organization.

What is a Salary Structure?

"When we are defining pay opportunities, there’s a range around the competitive pay. So that requires us to determine: what is the competitive pay? And then: how wide should that range be?" Brooke Green explained during a recent BLR webinar. This introduces the concept of salary structure. The salary structure defines the base pay opportunities for jobs and job groups in a company, and it is made up of grades and corresponding salary ranges that have been developed from data about pay patterns in the market. It is used to establish and maintain the organizational and market value of all of the positions in a company.

Who needs an official salary structure and pay ranges? What if you are a small company and only have a few positions right now? Why do all this research?

When you’re a small company you may be fine initially without a formal salary structure that groups jobs and aligns the pay ranges accordingly. However, as the company grows it becomes increasingly administratively burdensome to create a salary structure that is in alignment with the market – and you may have to correct pay to get positions in alignment later if you don’t plan for it now.

Additionally, having an official salary structure gives you information about the hierarchy of jobs, the internal value of jobs, and how they stack up. That might start to become important as you attach other things to that hierarchy. For example, you could use a formal salary structure as the basis for outlining what groups are eligible for a bonus. This is more systematic approach and allows you to manage pay more easily.

Utilizing pay grades and pay ranges as part of a more formal salary structure can be most beneficial to:

• Companies who are looking for a more systematic approach to managing pay. Pay grades and pay ranges help employers to ensure that new hires are not brought in at a higher rate of pay than more experienced employees in similar roles, for instance.
• Companies who are experiencing or expecting rapid growth. Pre-set pay grades and pay ranges can be used to prevent a bottleneck in the recruiting and hiring process; a formal salary structure lets employers plan on what to pay new hires in advance.
• Organizations with small HR departments with little time to perform "one-off" market pricings for every new hire.
• Companies where managers are making pay decisions and need appropriate tools to manage the situation in a way that is equitable and makes sense for the organization as a whole.

For more information on effectively utilizing pay grades and pay ranges, order the webinar recording of "Pay Grades: How to Develop a Competitive Pay Scale for Your Small But Growing Business." To register for a future webinar, visit http://catalog.blr.com/audio.

Brooke Green is a Principal and Western Region Reward Practice Leader for Hay Group, where she provides consulting advice and implementation assistance to clients with compensation support needs. Her particular focus is on the design, communication, and execution of broad-based compensation programs within public, private, and nonprofit organizations.