Every business, whether small or large, requires a well-established performance appraisal system that is integrated with formal pay structures and variable pay for performance. A salary range is very important as it shows what an employer pays employees who are performing particular jobs or functions in their business. In an organization’s pay structure, a salary range will show the minimum pay rate, a maximum pay rate and a series of mid-range opportunities for pay increases depending on the assigned tasks.

In most cases, the salary range is determined by the market pay rates, which have been established through market pay studies for people who are doing similar work in similar industries in the same region of the country. Salary ranges could also be set up by individual employers through recognition of education level, skill, knowledge and experience that is needed to perform every job.

Executive-level positions in businesses have higher salary ranges while the lower-level positions normally have the narrowest ranges. As for the senior leaders in the business, there is usually more flexibility since their decisions are final in business matters. In any case, salary ranges should always reflect employers’ needs such as pay increases in each level with or without a promotion.

How to design pay structures for small organizations

Many businesses use salary market surveys to research about salaries and compensations. Good thing is that nowadays, more salary research is occuring online especially those that pertain to use of salary calculators. Other than surveys, employers these days use demographic and market factors to set their salary ranges. These factors may include the amount of competition for employees with the required skills and education, the number of qualified people available to perform a specific job in an employer’s regions as well as the availability of jobs.

Larger organizations use the pay structure to classify jobs and also to distinguish one job from another. What is important is for an organization to come up with a competitive pay structure that will motivate its employees to contribute more to the business. A business should also aim at a salary range that will attract and retain the most superior employees.

What are the factors to consider?

1. The salary philosophy

The first thing employers should do is to determine their organization’s salary philosophy. Some businesses believe in raising the level of base salaries while others stick to the flexibility of a variable pay. For a growing entrepreneurial company, controlling the levels of base salaries may be a good idea, and then you can offer some bonuses once the goals have been achieved.

2. Salary comparison factors

You have to ensure that you remain competitive within your local market for most of your positions. Take time to study organizations with similar positions and those of your size and sales volume to determine whether your pay structure in compensation management is in line with theirs or not. Companies in the same industry as you, and in the same region, will give you a good reference point.

Pay structures in every business ensure that there is a set of guidelines to prevent any decision pertaining employee compensation from falling too far off the set standard. While different organizations will have different pay structures in place, it is important to ensure you stay top of the competition.