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Creating salary structures

Written by Salary.com Staff

December 5, 2023

What are Salary Structures, and Why We Use Them?

A Salary Structure is an organized, hierarchical method to manage, understand, and interpret pay data.

Salary structures help you ensure that all employees are compensated fairly, no matter their role or department.

Benefits

Managing Total Cash Compensation (TCC)
- Salary Structures can take account of bonuses, commissions, or other factors that make up TCC.
Scenario Analysis
- Salary Structures enable the creation of models to experiment with different compensation strategies. This helps you find the best approach for your organization.
HR Becomes a Strategic Partner to Management
- Salary Structures can be used to bring your compensation policy in line with broader business goals. They also allow you to make compensation decisions at scale – freeing up time for more strategic thinking.

Even Small Businesses Need Salary Structures

Fairness
- New legislation is turning pay equity and transparency from a moral good into a legal necessity. Salary Structures help ensure employees are compensated fairly, relative to their co-workers and the external market. They also give you a way to communicate the ‘how’ and ‘why’ behind your compensation decisions.

Retention
- Salary structures allow employees to understand how their pay is calculated and make informed career decisions. Knowing where you’re going, and how you’ll get there, increases employee engagement and retention.
Growth
- Salary structures take the guesswork out of expanding your business. They let you understand your overall labor costs and how it will change as you grow.

How to create Salary Structures in Excel	How to create Salary Structures in CompAnalyst^®
1. Market price benchmark jobs for every position. (This is really three steps. You have to find and organize the data before you begin.)
2. Stack rank all jobs based on value-add and internal hierarchy. Pro-tip: Typing or copy-pasting job titles from one row to another is a recipe for human error. Instead, create a new column called ‘Weight’ and give each role a numerical rank. After ranking each row, you can sort them using the ‘Weight’ column. This will save you time and make it easier to spot mistakes.	2. Run the Salary Structure Wizard.
3. Individually go through each job and assign it to a group. The groups should be based on the jobs’ similarities, such as their department or level of responsibility. A sample group might be Engineering, including Head of Engineering, Software Engineer, and Quality Assurance roles.	3. Decide whether you want to save it as a hypothetical ‘model’ or your ‘active’ Salary Structure.
4. Individually go through each job and assign it to a group. The groups should be based on the jobs’ similarities, such as their department or level of responsibility.
5. Use benchmark jobs as the median for each grade level.
6. Determine the spread within a range; this is how much the salary can vary within each grade.
7. Determine the midpoint differential between grades. This is a measure of how much the salary increases as employees move up through the salary structure.
8. Now you’ve got your Salary Structure, it’s time to see where your existing staff fit into it.
Pro-tip: Remember, a single typo at any point can ruin everything – so be careful!