Deciding whether you want to accept or decline a job offer depends on numerous factors. Often, compensation is seen as one of the most important factors.
Companies determine what their employees will be paid based on different types of pay structures.
Some companies also incentivize and reward their employees with added benefits to motivate them to work harder and reach company goals.
This article will show you the six most common types of pay structures, as well as additional benefits that you should look out for when considering, applying for, or accepting a job.
A pay structure is a system that defines what each individual in a particular job role is paid based on their value to the company.
Companies use compensation strategies along with payment structures to determine how each worker is compensated for their work.
Here’s a list of the six most common types of pay structures:
Individual pay rates involve a fixed wage based on each employee’s role within the company. This type of pay can be paid annually or hourly and is usually paid to people working in customer sales and service sectors.
With this structure, your pay consists of hourly wages, sales commissions, and reviews (if you’re in a customer service position).
The great thing about individual pay rates is that your salary isn’t affected by your team, as you’re paid based on your individual performance. Therefore, if you’re a higher-achieving employee, you’ll earn more.
With the federal minimum wage in the US being $7.25 per hour, you cannot earn anything less. And, since most organizations’ hourly pay rate is above the minimum wage, you have the potential to make a decent sum of money if you put in the work and hours.
Though this payment structure has many benefits, it can also breed unethical competition amongst staff members since it can result in fights over customers or sales.
A traditional pay structure, also known as the base pay structure, divides employees into pay ranges based on their roles and the market rate for that particular job. Companies determine how much specific roles are paid by conducting thorough market research.
For example, marketing associates may all be placed in the same salary range of $45,000 to $55,000 per year.
However, based on the specific employee’s years of experience and years at the company, they’ll fall into different pay grades within this salary range:
Pay grade 1: $45,000-$47,000 per year
Pay grade 2: $47,001-$49,000 per year
Pay grade 3: $49,001-$51,000 per year
Pay grade 4: $51,501-$53,000 per year
Pay grade 5: $53,501-$55,000 per year
This pay structure is best suited to companies with many employees taking up the same role. Therefore, if you’re applying for a job at an organization with hundreds, or thousands of employees, you’ll likely be paid with this method.
Much like the traditional pay structure, the broadband structure also divides employees into pay grades. However, instead of dividing them by job types, the broadband structure divides them by titles into different “bands” with different pay grades.
For example, a company may divide its employees into the following bands: Administrative jobs, service jobs, sales jobs, and executive jobs.
The jobs in each “band” are similar to one another. They require approximately the same level of experience and education, and they also have similar levels of responsibility.
Broadband salary ranges are bigger than those in the traditional pay structure and have fewer salary grades. The maximum pay for a particular band can be as high as 100%-400% above the minimum pay for that range.
For example, let’s say the pay grades for the administrative job “band” in a particular organization are as follows:
Pay grade 1: $30,000-$42,000 per year
Pay grade 2: $42,001-$51,000 per year
Pay grade 3: $51,001-$57,000 per year
A recent graduate that comes into an organization in an administrative role may earn $30,000. In contrast, an administrative employee working at the company for 15 years may earn $53,000.
The market-based pay structure is built solely on what the market is paying for similar jobs. Salary ranges and grades are determined based on a specific job’s market analysis and salary surveys instead of a job type.
For example, a retail store that uses a market-based pay structure will analyze data for the average salary of a store manager and create a salary range that’s in line with what most store managers earn. Market based compensation will factor in the work location.
Many companies use the market-based payment structure to pay their employees. In fact, a 2019 survey conducted by WorldatWork found that 55% of organizations use a market-based pay structure for their US-based employees.
Salary ranges often depend on the company’s size, with larger companies tending to have wide salary ranges within each pay grade and smaller organizations having smaller ranges.
Step pay structures are typically based on the time that an employee has been with a company. Therefore, salaries increase because of the years that an employee has worked for a specific company — if they’ve met its minimum requirements.
In other words, an employee that’s worked for a company for four years will earn more than an employee that’s worked for the company for three years.
Pay rates increase based on a pre-set schedule — usually in one or multiple years. Government agencies and law enforcement often use this payment structure.
One of the main benefits of the step pay structure is that your salary increases are predictable, and you won’t solely have to rely on performance for higher pay.
A pay spine is a business-wide payment structure that’s extremely effective because of its clarity and simplicity. This structure covers all salaries within a company, from entry-level positions to executive pay levels.
The pay spine consists of individual pay points, which are each associated with a predefined salary. Each of the company’s job positions is then assigned to a specific pay point based on the type of position.
This payment structure is highly focused on loyalty as employees can grow into new roles and higher salaries with time. In other words, if employees work their way up to managerial positions, they’ll earn more.
A huge advantage of this pay structure is that employees know exactly where their jobs will take them salary-wise and how they can get there.
However, since increases in compensation are often loyalty-based (and not based on skill), employees can resent higher-paid colleagues if they believe that they work harder for a lower salary.
Often, companies offer additional benefits to their employees. However, this isn’t always the case, which is why you need to be prepared to ask which benefits a company offers.
Here are the main things that you need to keep in mind when it comes to additional compensation and benefits:
A sign-on bonus is a one-time payment that an employee receives when they begin a new job. The payment can be 10% or more of their yearly salary, depending on their experience level. Though a signing bonus is common, it isn’t offered to all employees.
An annual bonus (also known as a Christmas bonus) is paid to employees at the end of the year. Annual bonuses are often tied to performance metrics, and each employee’s amount can vary based on whether certain milestones were met.
A performance bonus is, as the name suggests, a payment that’s given to employees for good performance. This type of bonus can be paid to an individual or to an entire department in the form of a lump sum divided amongst the employees in that department.
Commissions (also known as sales commissions) are payments given to employees whenever they make a sale. The commission an employee receives is often a percentage of the overall value of the sale. Usually, the harder the product is to sell, the more commission they receive.
The main benefit of receiving commissions is that the harder you work, the more you earn. Since many companies offer uncapped commissions, employees can work at the commission levels they want to.
An incentive stock option (ISO) is a benefit that allows an employee to buy shares of the company that they work for at a set price. If the option is exercised (the shares are purchased), this allows the shareholder to then sell the shares, hopefully at a higher price, for a profit.
Often, stock options are given to employees who work at a startup company to reward early employees when the company grows.
Overtime refers to the number of hours worked in addition to an employee’s normal working hours. For example, if an employee is contracted to work 40 hours per week, any additional hours (over the 40 hours) are considered overtime.
Overtime isn’t compulsory, and employees are allowed to refuse overtime work on short notice — unless their contract stipulates that they need to be available for overtime work at any time.
Employees that work overtime on Sundays need to be paid double their normal wage for every hour worked unless they regularly work on Sundays. In that case, they need to be reimbursed 1.5 times their normal wage.
There’s no limit to the amount of overtime an employee may work — if agreed upon by both the employee and employer.
Paid time off refers to the time that an employee is allowed to take off work while still getting paid their normal rates.
Many companies offer this benefit, and employees usually use paid time off for vacation, personal circumstances, or illness. This doesn’t include times when an employee is telecommuting or working remotely.
In 2021, 45% of private industry workers had access to incentive plans that gave them a single amount of time off to use for multiple purposes, including vacation, personal leave, sickness, etc.
As there is no minimum requirement for PTO benefits in the US, employers have the freedom to implement their own plans. Many companies calculate PTO based on an employee’s length of employment or the average amount of hours they worked.
Now that you know the different types of pay structures and which added incentives exist, you can choose a job that compensates you fairly.
Keep in mind that you, as the potential employee, can also negotiate for a better salary and added benefits. Learn how to negotiate for a better salary here!