Pay structures have two key characteristics:
- The number of bands within the structure.
- The span of each band.
Below are short definitions of different pay structures. However, definitions vary, and at times approaches may overlap. In fact, a strict definition might exclude the first two categories, because these can be classed as unstructured arrangements.
Individual pay rates, spot rates, spot salaries
There's a single hourly, weekly, or annual pay rate for each job or person. Spot rates are found among lower-skilled occupations where there’s a need for a simple ‘rate for the job’, or they are found among more senior positions. Here the remuneration package is designed to attract, retain, and motivate a specific person.
There's no formal structure for progression with this approach. However, there may be scope for moving to a higher spot rate, or to increase spot rates and keep pace with market rates or inflation.
Individual pay ranges, individual job ranges, individual salary ranges
These are more sophisticated versions of the above. An employer attaches a pay range to each job or employee. Individual salary ranges may be preferred to individual spot rates because they allow some formal scope for pay progression.
Narrow-graded pay structures
These comprise many grades, usually ten or more, with jobs of broadly equivalent worth slotted into each band. Usually, progression comes in increments linked to service length. Because grades are narrow, most people reach the top of their range quickly. However, this can lead to demands for upgrading and cause 'grade drift' (jobs being ranked more highly than justified).
Pay spines
Pay spines are based on a series of incremental points that allow for pay progression linked to length of service.
Broadbanding
This uses a small number of pay bands, typically four or five, to allow for greater pay flexibility than narrow-graded structures. A typical arrangement has no pay progression limits within each band, although some employers have re-introduced a greater degree of structure, partly to counter equal pay concerns.
Broad-graded pay structures
Somewhere between narrow grades and broadbands, these usually have between six and nine grades. They can help counter grade drift as there’s greater scope for individuals to progress further, without the need for regrading.
Job families
This groups jobs within similar occupations or functions together. Usually there are around six to eight levels, like broad-graded structures. There are separate salary structures for different families. This can help in facilitating higher pay for sought-after workers.
Career families, career-grade structures
These use a common pay structure across all job families, rather than operating separate pay structures for each family. They emphasise career paths and progression rather than the greater pay focus of the job families' approach.
Local pay structures
This is where pay varies according to the workplace location. Two inter-related factors contribute to local pay variation:
- Differences in the cost of living.
- Relative tightness of local labour markets.