Understanding pay scales
Most companies have an established pay scale to assist with hiring new employees and promoting experienced ones. Reviewing a company’s pay scale can help you decide if that company is offering a fair wage for your work and expertise while also identifying your future earning potential should you remain with the same company. Understanding pay scales can help you see the value of your work to the company and find a job that compensates you fairly. We’ll review what pay scales are, the considerations in establishing them, and the main types used by companies, and we’ll give you an example.
Pay scales, also known as salary structures or pay grades, are fixed systems employers create and use to determine an employee’s base salary for their skills, expertise, experience, education, and work. Pay scales are important business planning tools for companies to create new positions when the budget allows, while also providing a standard of transparency where employees know their value and join a company with clear wage expectations. Pay scales also serve as a motivating tool for employees to seek more certifications and gain expertise in their field for a sense of upward mobility within the company and role.
How do pay scales work?
Although any company within any industry can establish pay scales, they are most often used within the public sector for consistency. Implementing a pay scale replaces the traditional salary negotiation and can provide a road map for new employees to see their earning potential within the company while holding the same position. They clearly show the career pathways along with the lifetime earning potential. Employees benefit from knowing what to expect in terms of growth and compensation within a given company and can plan a future for their career path more effectively. Having this knowledge provides motivation for individuals to continue within the same organization working to hone their skills, continue their education, and work toward expertise in their role to increase their value as an employee.
What influences pay scales
Although many factors can influence where an employee places on a pay scale, companies and leadership often develop a set of standards to help in the fair assignment of compensation for new and existing employees to understand the hierarchy of the company and to have confidence that they are paid a reasonable wage. Some factors companies typically consider when creating a pay scale are:
- Individual industry: The need for services and products within differing industries directly relates to the need for employees and their skills. For services that are in higher demand, services that require more education, or production that necessitates greater skill, workers are paid more because their abilities are more valued and harder to find.
- Experience in field: The more time you have working within the same career path, the more advanced your experience and the greater your expertise. Because experience brings a greater depth of knowledge, the understanding is that your value increases as your knowledge and skills expand. Your value to a company increases because your skills can positively affect your productivity, and your expertise can serve to support less-experienced co-workers.
- Level of responsibility: Experience and responsibility are often related. An entry-level position within a company will often have fewer responsibilities and will, therefore, fall lower on the pay scale. Conversely, someone with 15 years of experience will have gained trust within the company and will likely hold a leadership role and shoulder more responsibility. Their hard skills, along with the soft skills often required of leadership, will help them attain a higher pay scale range. Remaining with a company for longer periods develops employee credibility and shows dedication to your industry and organization.
- Educational background: Sometimes education and training can account for any experience an individual lacks. Especially when entering a company or new industry, your educational background can help you qualify for a higher place on the pay scale as it establishes your expertise through study rather than on-the-job experience. Advanced educational degrees can help you gain upward mobility in an industry or within the same company and differentiate you from others within the same role.
- Advanced training and certifications: Once you’re in a position, taking part in training courses or earning advanced certifications will validate your skills and can show an employer your commitment to the industry and your job. Training and certifications can also qualify you for a higher role when you have no job experience, such as those entering the job market or transitioning careers.
Examples of pay scales
Pay scales are used to for businesses to provide an established and fair method of deciding employee compensation. Standardizing pay scales communicates consistency to employees and a solid foundation for understanding career trajectory and upward mobility within a company. The three basic types of salary structures used by businesses in determining employee earnings are:
The type of structure used by a company is guided by aspects such as industry, business size, location, and services or products offered. A clearly defined formal salary structure supports company transparency and delineates expectations. The pay scale and descriptions for each category can reveal the skills and characteristics the company values in employees and can serve as incentive for current employees to remain with the company or to seek professional development opportunities and can attract new skilled employees.
The broadband pay scale format is the least common. It offers more flexibility in regard to pay range, which is the margin between the minimum and maximum base pay for a given job. It identifies the minimum amount you can expect to make and the maximum amount you can expect to earn for a given role within a company.
Broadband uses fewer pay grades with a wider salary range, which gives a business more freedom in deciding employees’ individualized salaries. However, this structure can lead to larger pay disparities between employees who perform the same jobs and can lead to employee dissatisfaction. It can also allow employees to max out on their salary scale faster, lose incentive, and become frustrated with fewer pay increases. These factors can cause an employee to look to another company in search of greater salary or motivation.
A typical broadband structure pay scale may look like this. Please note the overlapping values:
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6
Salary 17k-20k 20k-22k 22k-26k 26k-31k 30k-35k 34k-40k
The traditional structure offers businesses less freedom in determining an employee’s salary because it utilizes more pay grades. This method creates a more equitable method of determining salaries and provides more motivation for employees to stay with the same company as they can see more upward mobility in terms of pay increases, which happen more frequently and consistently, although they may be smaller in nature. The salary range is larger in each grade, but salary increases are small differences in each grade. This strategy offers more incentive for professional growth but keeps employees in a pay grade for longer.
Grade 1 Grade 2 Grade 3
Salary 45k-55k 55k-75k 75k-98k
A market-based structure is determined by what other employers in an industry pay their employees. A market-based pay scale is the most popular one in recent years and is based on research evaluating what other companies are paying for the same position. This model helps equalize pay across a given industry. Employees’ decisions on where to work aren’t influenced solely by salary. They must consider other aspects that influence job satisfaction such as company culture, leadership, and the company’s values as revealed through its mission and overall goals.
Looking at what other companies pay for a specific position through the U.S. Bureau of Labor Statistics provides information on median salary expectations. If you’ve been offered a position, you can see how your offer compares to others in similar positions and see if you need to negotiate for fair pay. This guide can help you have a productive conversation about your salary package offer.
A market-based salary structure can look similar to the traditional structure but is comparable to what other employers pay.
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6
Salary 30k-35k 35k-40k 40k-45k 45k-50k 50k-55k 55k-60k
Employers show they value employees and their contributions to company success by paying them fairly. Although these three structures are the most typical, employers can use them in many capacities. A business may begin with one structure and discover that another one fits the business model and needs better. Be sure the organization you work for and your leadership appreciate your skills and efforts and compensate you for your time and skills fairly by offering a competitive salary package. Discover if you have a fair job offer. See how your offer compares to other packages and if you need to negotiate.