Updated at 10/07/2024 - 11:22 am
Salary structure refers to the salary structure by which the enterprise builds the salary system. Most companies operate under a specific salary structure as a way to organize employee pay and make it easier for the teams responsible for recruiting new employees and promoting existing ones.
Salary structure helps employees understand how much minimum they can expect to earn and what is the maximum earnings potential for their role. In this article, we learn what a salary structure is. , common types of salary structures to familiarize yourself with, and how to create a salary structure.
Learn about Salary Structure #
1. What is the salary structure? #
The salary structure is how a company or its members determine how much an employee will be paid. It is based on factors such as how long employees have worked at the organization, their rank at the company, their achievements and the type and difficulty of the work they do.
Many employers use a salary structure that includes salary tiers, which helps employees know what salary they can expect for their role, with minimums, maximums, and averages. The bottom salary is the minimum salary someone in this role can earn while the top salary is the maximum amount an employee can expect to earn in the role. The midpoint is the salary that appears between the two points. New hires or existing employees getting a raise can negotiate the salary they fall into.
New employees entering an organization may start at the bottom of the pay scale because they have no seniority and may enter non-managerial roles. Other new hires, while still new to the organization, may have a lot of experience and work in leadership positions, in which case they may start to be paid more according to the salary structure. .
Salary structure including salary levels is common.
2. Types of salary structure #
When deciding what type of salary structure to use, consider what types others in your industry are using, the size of your business, where your company's headquarters are located, and whether employees are exempt, not exempt or not. Here are some salary structures:
→ Market-based salary structure
Market-based salary structures are the most common and involve you paying your employees based on what other companies in the same industry pay their employees. This type of salary structure requires some research so you can find the average salary for a position and structure your own salary scale from there.
A market-based salary structure might look like this:
- Level 1: 5.000.000 to 7.000.000 VND
- Level 2: 8.000.000 to 10.000.000 VND
- Level 3: 11.000.000 to 13.000.000 VND
The main benefit of using a market-based salary structure is that employees will feel that their pay is fair relative to the industry average for their role. This can help employers retain top talent and recruit new hires with the industry knowledge and experience to help their business succeed.
→ Traditional salary structure
Traditional pay structures involve using multiple pay tiers so that employees can work for maximum pay over time instead of achieving paychecks too quickly, which can lead them to seek out opportunities in other areas. elsewhere or become less productive. Businesses using a traditional salary structure also often offer smaller wage increases.
If you're looking at a traditional salary structure, determine what you'll call each salary, how much there will be, and what the range will be for each, including minimums and maximums. You will then establish what an employee must do to increase his salary, whether that includes staying in the organization for a certain amount of time or demonstrating outstanding performance.
Using a traditional salary structure, a job at an organization can range from VND 8.000.000 to VND 20.000.000, with the following salaries:
- Level 1: 8.000.000 to 10.000.000 VND
- Level 2: 11.000.000 to 12.000.000 VND
- Level 3: 13.000.000 to 14.000.000 VND
- Level 4: 15.000.000 to 16.000.000 VND
- Level 5: 17.000.000 to 18.000.000 VND
- Level 6: 19.000.000 to 20.000.000 VND
Companies using a traditional salary structure can appreciate that it gives employees the opportunity to be promoted from one pay tier to the next. When employees see that they are moving up in their salary range, even if they are still in the same position, it can be a big motivator for them to keep producing their best work. Traditional salary structures also allow a company to maintain more control over wages.
→ “Wide Gap” Salary Structure
The “Wide Gap” salary structure is the least common, but still companies choose this route because of its usefulness.
This salary structure is similar to the traditional salary structure in that there are salary levels where workers have to move to a new tier in order to be paid more. What makes the “Wide Gap” wage structure different, however, is that it merges multiple salaries into a few broader salaries, meaning there are fewer pay grades and each salary range has a wider salary range.
Using the “Wide Gap” salary structure, a role at the company can range from VND 8.000.000 to VND 20.000.000, with the following salary ranges:
- Level 1: 8.000.000 to 10.000.000 VND
- Level 2: 11.000.000 to 14.000.000 VND
- Level 3: 12.000.000 to 20.000.000 VND
The advantage of broadband is that this structure is more focused on long-term career growth than advancement.
A company that chooses to use “Wide Gap” may not have many opportunities for advancement. Instead, it provides a way for employees to develop their skills and take on more responsibilities so they can grow in their roles while receiving regular raises, even without promotion. office. “Wide Gap” is especially useful for smaller organizations with flatter hierarchies.
How to build a salary structure for businesses #
You can start developing that structure by following these steps:
1. Look at the salary structure in other companies #
Even if you don't use a market-based salary structure, you should still check to see if other companies are paying their employees in similar positions to yours. It is important to look at companies in the same industry so that you get the most accurate results. For example, if you run a software company, consider evaluating other software companies versus a healthcare company.
By doing some research, you can better understand how competitive salaries are and whether you need to make any changes based on your findings. You can also develop your official stance on how competitive you want or can be compared to other companies. You might consider paying more than the market average if you want to attract high-quality candidates and keep your current employees happy. However, you may need to pay less than the market average if you are a startup with many benefits but few resources to pay well to new hires.
2. Decide how you will handle the raise #
Once you know what your competitive situation is, you can decide how you'll handle future salary rate increases for things like promotions and annual raises. Choose what you want based on these increases, whether it's employee performance or how long they've been at the company. You can also decide how often you will give the gain. Most organizations hold an annual review process, where managers decide how much salary increases for each employee should be.
With market knowledge, you can also decide if the gain you give is above average. For example, a company may choose to initially pay employees a higher-than-average salary, but offer a smaller increase each year than the market average. Another company may have a below-market average salary for a position, but offer a generous annual raise to make up for it.
It is up to each business to decide the right balance between offering competitive starting salaries and the ability to retain quality employees through impressive salary increases.
3. Evaluate your current salary structure #
As you're developing your salary structure, evaluate your current salary to identify any employees or departments that are earning more or less than they should based on the company's competitive landscape. friend. You may find that you inadvertently pay employees in one department more than the market rate for the same job, and that every other employee in the organization is around the average for their position. This inconsistency can frustrate employees, who may then choose to apply elsewhere for higher pay.
4. Start building your salary structure #
After you consider market rates and understand more about how you currently structure salaries, you can write down the salary ranges for each position, including minimums and maximums. Choose how much salary you want to give for each salary.
5. Look at your current employee's salary #
Having salary ranges written for each position will give you the opportunity to gauge where the current employee falls within. You can look at each person to see who is underpaid and who is overpaid in their role. Employees should be within the minimum and maximum wages for their position; anything beyond that and you might want to explore ways to fix this so you're compliant with the new pay structure.
If you're paying an employee less than their minimum wage, consider raising them immediately to a reasonable level. If this is not a viable solution for your business, you might consider giving them a raise for a short period of time. If you're paying an employee more than their maximum salary, you may need to forego their annual raise until you adjust your salary structure based on market rates. In this case, and to keep employees engaged and happy at work, explore alternative ways to compensate them. For example, you can set up a bonus program.
Benefits of having a salary structure #
Some organizations choose not to create a pay structure because developing a pay structure requires a group of employees who can spend the necessary time fine-tuning a system of this nature. These individuals will need to assign current positions and employees by salary and continue to monitor market rates for any updates that need updating the salary structure. However, companies that incorporate a salary structure can realize the following benefits:
1. Financial planning is easier #
Leadership teams, especially when budgeting for a new financial year or deciding whether to approve a new position within the company, can more easily plan if they know about minimum and minimum wages. multiple of each location.
2. Employees perceive consistency #
New employees entering the organization with assigned ranks that are fair to existing employees based on the parameters you have set can make everyone happy. Existing employees can also feel confident that their pay is fair.
3. Salary structure is the driving force behind employee performance and the whole business #
When employees have a clear path to making more money, they can feel motivated to work in that direction. The pay structure paves the way for an organizational hierarchy that employees can view and appreciate as a career path.
