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More Organizations Shift to Market-Based Pay Structures

By SHRM Online staff  11/16/2012

Salary structures serve as the foundation of administering base pay within organizations. Although not a fast-moving trend, there has been a notable shift in their use in recent years, according to a new study by WorldatWork and Deloitte, 2012 Survey of Salary Structure Policies and Practices.

Survey data were collected in July and August 2012. Respondents were members of WorldatWork, an association of mostly U.S.-based total rewards professionals, and Deloitte contacts employed in the HR, compensation and benefits departments of mostly U.S. organizations.

In the survey, the types of salary structures were defined as follows:

Traditional: Typically has range spreads of 20-40 percent and midpoint progressions of 5-10 percent.

Market-based: Typically has range spreads of 30-80 percent and midpoint progressions of 10-15 percent.

Broadband: Typically have range spreads of 80-200 percent with no defined midpoints.

Step structure: Typically has range spreads of 20-40 percent and midpoint progressions of 5-10 percent with defined points (steps) within the ranges.

Market-based salary structures now are the most prevalent type of pay structure (used by 64 percent of respondents), the survey found. While traditional and broadband structures have been popular in the past, they are less common today (23 percent and 12 percent, respectively).

“Compared to prior survey results, we have seen an upward trend of organizations using market-based structures over traditional structures,” said Kerry Chou, CCP, a practice leader for WorldatWork. “Market-based structures have struck a chord with organizations because they combine the more well-defined parameters of a traditional structure with the range spread flexibility of broadbands.”

Pay Structure Variations

Of note, 37 percent of the organizations surveyed use different types of structures by job level and 30 percent by geographic location.

“Variation in structures based on critical workforce segments, geography and job function is not surprising to us, as we see continuing focus by employers on balancing the need to attract and retain critical talent with a laser focus on cost and judicious spending of organizational funds,” commented Gregory Stoskopf, director, compensation strategies for Deloitte Consulting.

Among other survey findings:

Traditional structure range spreads appear to have increased over time, while midpoint progressions have loosened.

For market-based, broadband and step structures, larger organizations tend to have wider ranges, whereas smaller organizations have smaller ranges.

Consulting, professional and scientific/technical services appear to be the heaviest users of market-based ranges.

Out of the 80 percent who responded that salary ranges were adjusted regularly in their organization, 70 percent did so annually, while 12 percent adjusted every two years.

The most popular tool for salary structure design, administration, record and communication was spreadsheet applications (for example, Microsoft Excel). Other common tools for design and administration were point solutions (for example, tools specifically focused on salary structure management) and enterprise systems (for example, Oracle, PeopleSoft, SAP).

Related SHRM Articles: 

Compensation Practices Become More Rigorous, SHRM Online Compensation Discipline, October 2012

Compensation Function Heightens Focus on Communication, SHRM Online Compensation Discipline, SHRM Online Compensation Discipline, September 2012

Developing Performance Rating Scales, SHRM Templates and Tools, July 2012

Effectively Managing Base Pay: Strategies and Programs for Success, SHRM Online Compensation Topics, January 2010

Building a Market-Based Pay Structure from Scratch, SHRM Tools and Templates, December 2008

Rewarding Employee Contributions, Not Job Titles: A Base Pay Strategy to Retain Peak Performers, SHRM Online Compensation Topics, January 2007

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