Pay structures

Pay structures, traditionally a sequence of grades into which jobs were fitted, are increasingly being replaced by ‘broad-banding’ and ‘job families’ more appropriate for less hierarchical, more flexible organisations. Job family structures remain rare in the public sector, which continues to prefer the certainty of pay spines (an extended series of pay points that creates a scale) with senior managers on individual pay rates.

The private sector generally adopts a semi-analytical approach to pay structures. This is a combination of non-analytical approaches (where jobs are viewed as a whole and placed in a framework) and a traditional analytical approach, where key elements in each job are identified, broken down into components and awarded points.

These semi-analytical approaches involve creating a banded framework, defining the skills, competencies, and work requirements for each role, and slotting them into the general framework. Not only does this provide sufficient detail to provide a basis for fair reward – including the ability to defend against any equal pay actions – it also provides a flexible solution for organisation design.

Pay structures can be distinguished by two key characteristics: the number of grades, levels or bands; and the width or span of each grade. For example:

narrow-graded pay structures, often found in the public sector, typically comprise ten or more grades, with jobs of broadly equivalent worth in each grade. Progression is by service increments, although due to narrow grades employees can reach the top of the pay range relatively quickly, potentially leading to ‘grade drift’ and jobs ranked more highly than justified

broad-graded structures have fewer grades, perhaps six to nine, and greater scope for progression that can counter ‘grade drift’ problems

broad-banding involves the use of an even smaller number of pay bands (four or five). Designed to allow for greater pay flexibility, typical broad-banding would place no limits on pay progression within each band, although some employers have introduced a greater degree of structure

job families group jobs within similar functions or occupations, with separate pay structures for different ‘families’ (e.g. sales or IT staff). With around six to eight levels, similar to broad-grading, job family structures allows for higher rates of pay for sought-after specialist staff

career families extend the metaphor with a common pay structure across all ‘job families’ rather than separate pay structures for each family. Career families tend to emphasise career paths and progression rather than the greater focus on pay of job families.

Effective, fair and realistic

The chosen system must be seen as fair and realistic. If performance targets seem unreachable, the system will lose the support of staff. If there is a question mark over the fairness of the rewards allocation, individuals are likely to become disengaged if their contribution in relation to others is not adequately rewarded and, in the current improving jobs climate, vote with their feet.

Effective reward systems should be transparent and communicated effectively so people know what is expected of them and how their targets affect their rewards: if customer satisfaction is one of your stated values, a system that rewards immediate sales but does not encourage good customer or post-sales service will not work.

But not only do relatively few organisations effectively communicate their total reward packages, only around a third assess the impact of their reward strategies, which suggests two-thirds may have no idea if their reward system works. This can mean employers implementing ineffective systems and employees wondering exactly what they have to do to receive reward and recognition.