Compensation Management| How to design salary band structure

Compensation Management| How to design salary band structure

Jobs salary grade scale or simply salary band structure acts as a guide for the HR department in the event of making offers for new hires for a role in the organization.

Based on this information, the hiring manager and the HR can make an informed decision on what to offer for the selected candidates. Alternatively, for the purpose of considering a fair & equitable pay grade scale, the new entrants are benchmarked against the similar employees (i.e., existing employee) for the position he/she is being hired for.

To limit the salary-related discrepancies and further to ensure internal compensation uniformity in the organization, salary band /grids are utmost importance criteria for every professional organization out there.

In general practice, the salary grid is prepared & maintained by the HR team with the highest confidence. Besides, this information is being made available for a few senior management team members only just for their respective teams. As a norm, organizations consider pay information highly confidential subject.

Despite being strictly confidential matter, the fact is compensation has always been a crispy hot topic of discussion at the coffee-table among close associates at the workplace. As a result, it is the accountability of the HR team to structure fair & equitable pay grades inline with individual roles & responsibilities.

Following example will help everyone understand the way and means to prepare pay grade scale/ salary bands which are again unique to each organization. Note: Figures are in Rupees, Salaries are yearly not monthly for each position, imaginary salary figures shown for software engineers.

Salary Band (Figs. In INR yearly salary count)

While designing compensation bands, for ensuring external parity - benchmarking compensation with Industry plays a critical role. How an Organization positions itself in relation to the industry competitors can strongly influence its ability to hire and retain the desired talents. Tools like compensation surveys act as a source of information to obtain comprehensive data on base salaries, allowance categories, incentives plans and the benefits program in practice amongst peer group companies. Generally, organizations can either take the help of third-party resources or alternatively can buy ready-made compensation survey reports from consulting organizations such as Hewitt, Watson& Wyatt and mercer.

A company starting up, a new HR department or a unit in a new city or country can acquire prevailing compensation data with the help of such survey reports. Instead, any organization can enrol them to participate in such annual surveys conducted by these consulting organizations too.  

Following standard steps can be imitated by any such organizations who all are intending to do so.

1.    Recognize the scope of the survey

2.    Spot the correct industry competitors for benchmarking

3. Arranging the right internal compensation data for the survey

4. Comparing & Mapping correctly the industry data with internal data. Specifically in relation to positions, job descriptions and salary bands.

5.   Recognize the position of the company as compared to the market and benchmarking where it wants to be as compared to the market & why so?

Hope above mentioned short guidance with regards to the salary band structure will be of help.