Pay Structure and Progression
Rabab Ali and Nadeem Yousaf

Pay Structure

A pay structure means direct monetary benefits according to the organizational pay policy for executing various jobs that are assigned to different positions. It is the cash payment that a worker or an employee receive against doing the work, popularly known as wage or salary. Wage rates or salaries means payment of a single hourly pay rate or a single weekly or monthly salary attached to executing the job(s). Wage rate is generally set for doing a single job and more common for manual jobs. Salaries are generally paid for clustered of jobs which are attached with the position.

Pay structure policy is important for initiating the recruitment process, encouraging performance, managing career progression and adhering the labor laws of the country. Individually-negotiated and hap-hazard pay rate can generate problems in  organizations. Small organizations may survive without a pay structure policy but it is essential for large and complex organizations exceeding 150 employees. Why do a policy of pay structure is important? It is important to impart concept of equality without bias. It generates trust among employees on the system that they were not deceived during the process of hiring. Supposedly, if an organization hires two personnel with same qualification but their salaries varies it will disheartens the employee who is receiving less. People working on the same position can draw a different pay but the reasons must be outlined clearly in the pay policy.  Pay structure varies from the organization to organization depending upon its structure and grading system. Which of the pay structures will be adopted dependent on various factors such as the philosophy of the firm or organization, number of grades and levels, economic situation of the country, industry in which a firm is operating, market trends, government policy etc.

 It is advised that pay structure should have pay range within a grade, from minimum to maximum, to accommodate individuals with varying education and experience. Each grade that exists in the system should have pay range. Why should pay structure have pay range within the grade? The simple answer is to give more flexibility in hiring and retaining qualified and skilled human resource.  It is possible to devise a common grading across the system as we mostly observe in public organizations or devise a different grading system for different job families.

In performance-related pay (PRP) structure, actual payment to the employees can vary but the basic principle is the same that those who are giving the performance within the standard range they must be treated equally. All employees are ranked on the scales on the categories, which are predefined. Scores or ranks on the scale provide the reason for the increased reward. Performance-related pay structure may not suitable or possible for all types of positions unless new approach is adopted. Traditionally, performance based pay structures are easy to execute where performance can be measured quantitatively than qualitatively, for example, it is easy to introduce performance-related pay structure for sales executives because performance can be measured quantitatively; however the crucial question is how this strategy could be applied on the personnel working  in other departments such as Human Resource Department?  The new approach emphasizes on holistic view in which output not only is the criterion to adopt PRP but the input as well.  In new the holistic approach, PRP is not associated only with direct business performance results but employee's personal objectives such as learning new skills are also seen part of it as well. The idea behind is that that when employees grow and learn new skills it helps business growth. The concept of PRP might looks very simple but it is not in practice because it has various complications, for example, setting the categories on which employees will be rated objectively, especially, for those employees who are performing qualitative work. The other complication is how to handle level of motivation across the firm because employees who are not rewarded might not view their performance is very below than those employees who are rewarded.  It is equally important that line managers avoid using subjective opinion or any discrimination in rating subordinates.

The crux of this essay is that pay structure policy must be linked with the strategic planning and should be unbiased and transparent to win over employee's commitment. It will also be helpful to the team that negotiating salary or wage rate with potential employees. Existing employees will be clearly know what they are getting now and what they can expect in future.

 

Pay Progression

Pay progression is a process by which employees gets higher levels of pay by reaching the certain level.. Pay progression is affected  by pay grades, span of each pay grade and levels of hierarchy within the structure. Pay progression can be based upon various factors: (1) length of service of an employee in the organization, (2) age related increment, (3) merit based pay rise on the recommendation of the line manager, (4) pay rise linked to team performance, (5) pay progression based on organizational performance, (6) pay rise  based on individual competency or skills and (7) pay increase due to change in market rates.  The objective of pay progression is to retain the experienced workers or employees and to show that the company looks after the interest of the  loyal workers and employees.

Commonly asked question is how to calculate a range within a grade and the difference between one grade and the adjoining or adjacent grade. There is no simple answer to these questions, however a conservative assessment is that ceiling of the grade should not be less than 20%. For example if a starting salary of a grade is $30,000 per year than ceiling should not be less than $36000 per year. Similarly, the starting salary scale of adjoining grade should not be less than 10%.

Inflated Vs. real pay progression. Inflated-pay-progression increases pay rates of all employees to adjusts the rate of inflation whereas Real-Pay-Progression provides the opportunity to improve employees' quality of life. If increase in pay is 100% according to the rate of inflation so it means that employees are in "no-win-no-lose" situation, if increase is less than the inflation rate, it means that employees are in "lose" situation and contrary to it they are in "win" situation. It is important to review equality issues because pay progression should not be unfair, unlawful or biased.

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