Maintaining a salary structure that aligns with the organization’s pay philosophy and is competitive to the labor market is imperative for any organization. Most organizations update their salary structure every one to two years, as budget permits. However, during the recent recession, some organizations chose not to increase their salary structures for cost containment and/or a lack of competitive pressure to do so. For 2017, the stronger U.S. economy and increased employer confidence should continue to bolster job gains, and economists expect the previously sluggish wage growth to accelerate. Whether or not you’ve adjusted your salary structure during the past few years, it is certainly time to do so now.
The review of your salary structure should determine whether it is still aligned with the company’s needs, pay philosophy and the labor market. Salary structure adjustments maintain the structure’s competitiveness with the external labor market and protect an organization’s ability to compete in the market place for talented employees. If the salary structure gets out of sync with the overall labor market, a company may find itself paying employees too much and needlessly increasing operating costs, or paying employees too little and having difficulty attracting and retaining talent. Salary-structure issues are less expensive to address early on so it is best to review your salary structure annually for any needed changes. If you wait two or three years to review and adjust, the labor market can move significantly upward in that period of time and the cost of salary range adjustments and resulting salary increases can be substantial.
Other business changes and events may warrant a review of the salary structure, such as the company’s merger or acquisition, or a competitor opening or closing a facility that impacts the company’s operations. At times during the year hiring managers may alert you to possible salary-structure issues and their insight can indicate that specific areas of the salary structure are out of alignment. But there may be other factors that the manager is not aware of, such as an organization’s strategic decision to set pay levels above or below the market median.
There are two basic methods for updating your salary structure and many companies will alternate the two methods, performing the ‘quick’ adjustment one year and the ‘in-depth’ adjustment the following year.
- The Quick Adjustment method is where you collect and consider trend or annual merit increase information, then adjust your ranges by a percentage you view as necessary to remain competitive. Trend and annual merit increase surveys are published every year and most companies rely more on average or median salary increase figures.
- The In-Depth Adjustment method is where you select a representative sample of benchmark jobs using currently published compensation surveys for your competitive market. Collect the competitive salary data, and then compare your salary range mid-points to the market medians or the percentile that you chose to compete with for the benchmark jobs. The results will help you determine the degree to which your ranges should be adjusted and also identify any jobs or job families whose pay is moving at a different pace than the rest of the market and may need re-graded. This methodology requires more data and time to complete.
Alternating annually between these two methods should maintain competitiveness, cost efficiency, and save time from performing the In-Depth Adjustment analysis every year. Any resulting increases from the structure movement should be minimal and workable within the current budget year.
It is also important to remember that established pay grades, the jobs’ placement within the pay grades and well-maintained job descriptions are the nuts and bolts of the salary structure. Companies change over time and job functions and duties can also change. Keeping job descriptions accurate and reflecting the core duties of each position will be essential to appropriate and competitive salary ranges and pay.
Companies should consider the reassessment of their salary administration programs, along with all of their compensation plans, as a vital and ongoing part of the program’s success. Assessing the program to ensure that it continues to meet your company’s needs is perceived as a credible and functional part of the Human Resources process, and will enhance your company’s ability to remain a competitive force in the marketplace. When was the last time your organization reviewed its salary structure(s)?
At WageWatch, we offer accurate, up-to-date benefit survey data, market compensation data, salary reports and consulting services that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. WageWatch, Inc. is the leading compensation survey provider for the lodging and gaming industries with 6,000 properties participating in its PeerMark™ Wage Survey. WageWatch also conducts compensation surveys for other business and industry segments including healthcare and non-profits. For more information on our services, including market compensation data, benefits survey data, salary reports, and consulting services, please call WageWatch at 888-330-9243 or contact us online.