CHAPTER 11
DESIGNING A BASE PAY STRUCTURE
After determining internal equity relationships among jobs and identifying competitive pay
practices in the marketplace, the next order of business is the design of a pay structure. A well-designed
pay structure provides for an orderly and logical arrangement of jobs and establishes a rate of pay or
range of pay for the jobs of the organization. There are many options available for tailor-making a pay
structure that meets the demands of a specific organization. A careful and thoughtful analysis of what an
organization desires from the pay structure will lead to its design characteristics.
KEY CONCEPTS:
2. Guidelines for designing a pay structure.
4. Developing pay grades—determining minimum and maximum rates of pay, setting steps
within a pay grade, establishing relationships between adjoining pay grades.
6. Having more than one pay structure.
8. Developing a broadband pay system in which ranges of pay from minimum to maximum in
the band may exceed 100 percent.
SIGNIFICANT POINTS OF INTEREST
1. The pay structure provides the technical framework for relating the base pay of one job to
2. A pay structure first requires the establishment of a pay policy line.
3. It is possible to establish a pay policy line by plotting job rates of pay on the vertical (y) axis
5. From the pay policy line, the pay structure can then be further developed by determining pay
6. All of these variations relate to personal choice (compensation policy determination) as there
is no one right approach for designing a pay structure.
7. Whether there is to be a single pay rate or rates of pay for jobs, the amount of overlap to
8. Ranges provide greater flexibility and opportunity for employees to gain in-grade, on-the-
job pay increases. Overlap permits skilled workers in lower graded jobs making greater
9. Some organizations may use more than one pay structure in their total compensation
10. One approach available for eliminating the need for more than one pay policy line is to have
the pay policy line curved rather than straight. Using a logarithmic scale for the vertical axis
12. Various mathematical procedures are available for determining the upper and lower limits of
a pay grade once the midpoint is known and spread of the range is determined.
13. The importance of the market rate is that it frequently establishes the midpoint for pay
structure design.
14. By increasing midpoint-to-midpoint differences and range of pay when using an expanding