How to Align Your Pay Structure With Hiring

A manager who has aligned her company's pay structure with its hiring practices welcomes a new employee to the company.

If you’re finding it difficult to attract and retain talent, it may be time to revamp your pay structure.

The internet has made salary information easier to obtain, leading top performers to demand more information about their current compensation and how they can augment it. At the same time, employers are working to close pay gaps due to race and gender, and to provide employees and applicants with more transparent salary ranges.

About three-quarters of employers responding to a survey said they have a pay strategy or are currently reviewing theirs, with most focusing on retaining top performers.

If you’ve been asked to revise your company’s pay scale and you’re not a compensation specialist, don’t panic. Embrace this opportunity to create a more equitable, competitive, and productive workplace.

The Benefits of Revising Your Pay Structure

Revamping your salary structure will require you to answer basic questions about your business and its mission and goals. If you are an innovative company looking to become a market leader, you may choose to develop a highly competitive salary scale designed to attract top talent from throughout the country or even beyond. If you’re a regionally focused business, you may choose to align salaries to rates of compensation and the cost of living in your community.

And that’s just a preliminary step. It’s a big task, but the benefits are many. Analyzing and revamping your pay structure:

Creates a pay scale that is competitive enough to attract highly qualified applicants.
Places you in a more powerful position during salary negotiations.
Makes salary negotiations easier, more straightforward, and less time-consuming.
Establishes an equitable approach to salaries, assuring employees that they are being compensated more fairly.
Increases employee retention.
Incentivizes high levels of employee performance and engagement.
Helps employees feel as if the success of your company and its mission is in their best interest.

Popular Types of Pay Structures

During the preliminary phase of your salary restructuring endeavor, you’ll want to familiarize yourself with the most prevalent structures and determine which is most appropriate for your business.

Traditional: Employers create a unique salary for each position, typically by level of authority. This is probably only appropriate and workable in a very small workplace with few employees.
Broadband: Pay ranges are pegged to the type of work performed. For example, there might be one set of pay ranges for administrative support, another for technical support, another for sales and executive positions, etc.
Step-based: Pay scale is determined by tenure in the role or years at the company. Many schools or unionized workplaces have this type of pay scale. Those who work in skilled crafts also often command progressively higher levels of compensation to align with levels of mastery—apprentice, journeyman, master—for example, mechanics, masons, or electricians.
Market-based: In this structure, some roles have a higher or lower compensation scale based on market demand for that role’s skill set and what candidates in that role can command on the job market.

Depending on your business, you may need to use more than one of these scales; for example, a step-based scale for employees in the skilled crafts and a market-based structure for your sales and support staff. The four steps below will help you determine which structure or combination of structures will work best for you.

Step 1. Analyze Your Current Pay Structure

Now that you’re familiar with the most prevalent approaches to compensation , it’s time to analyze your current salary structure. Start by collecting job descriptions and comparing the contributions of each role to its current level of compensation.

As you complete this task, ask questions about each role:

How crucial is each job to the success of your organization?
What is each position worth?
Are you offering equal pay for equal work across categories of gender, race, and other legally protected categories?

Slight differences within the same department and at the same level of responsibility are to be expected, as long as they can be attributed to differences in education and prior experience. However, wide and persistent differences in compensation between employees of different gender and ethnicity identities are a red flag, especially if they exist in similar roles. As a growing number of states enact pay equity laws, such discrepancies can leave you vulnerable to lawsuits.

Step 2. Determine How Your Salaries Compare to the Competition

Now that you’ve evaluated your own salary levels, it’s time to see if you are in line with other employers in your sector. Are you underpaying or overpaying for talent? This activity is called salary benchmarking.

Large employers often hire a consulting firm to collect highly targeted competitor salary information, but the price tag can be prohibitive for smaller employers. You can gain reliable salary information for the price of a professional association membership or subscriptions to online trade journals that often publish year-end salary surveys.

If you combine this low-cost data with no-cost salary statistics from sources, such as the Bureau of Labor Statistics or its affiliated site, O*Net. You can also use a salary tool that provides median pay rates by profession and geographical location.

You also need to consider other forms of direct compensation. Are your competitors rewarding their employees with bonuses or commissions? If so, you need to factor these additional opportunities for compensation into your pay scale if you want to remain competitive.

Step 3. Establish or Adjust Salary Ranges

Now it’s time to put some your research into action by establishing clear salary ranges and to adjust current employee compensation to reflect each role’s value and to avoid the appearance of bias.

Make sure that proposed salary ranges won’t negatively impact revenue, as each position’s total compensation should pay for itself and then some. Remember that sometimes generous benefits—low or no-deductible health insurance, for example—can outweigh a slightly higher salary range.

Step 4. Consider Building in Pay Progression

“Pay progression” refers to a pay structure based on achievement-based incentives. Adding pay progression into each salary range will add another step to an already labor-intensive endeavor, but it will offer the following benefits by:

Incentivizing employees to attain new skills, certifications, and competencies.
Encouraging your most ambitious employees to remain in your organization as they gain marketable skills.
Aiding in recruitment, since only about one-third of companies provide clear information on advancement to their employees.

Clearly outlining ways for employees to earn performance-based pay increases is an effective way to reward high achievers and lure top performers away from your competitors.

Now That You’ve Revised Your Pay Structure, Attract Top Candidates with a Free Job Post

You’ve taken a huge step toward attracting the best job applicants in the field by re-aligning your compensation structure. Now put that competitive salary range to use with a free job listing from Monster, and gain access to better candidates faster.