3/21/2025
By: Sara D. Schmidt, CCP, PHR, SHRM-CP
Salary Administration Programs are designed to provide competitive and equitable base pay to all employees using salary structures and formal policies and procedures. An effective Salary Administration Program allows a company to meet the basic objectives of compensation: focus, attract, retain, and motivate. In addition, the Program should be flexible to allow for changing conditions and fluctuations within the business and marketplace.
Often, Salary Administration Programs are tied to a pay-for-performance philosophy, whereby annual increases are differentiated based on the evaluated performance of an employee and may be further influenced by the employee's placement within their salary range.
Salary structures are an important component of Salary Administration Programs; they enable companies to properly compensate employees, both from an external competitiveness and internal equity perspective. Without a formal salary structure in place, it is difficult to manage internal equity.
It is imperative to consistently monitor the marketplace and update salary structures to keep your internal compensation practices continuing in pace with the competitive marketplace. Keeping your salary structures in line with the external marketplace will assist with any potential compression issues between current employees and new hires.
As more states and cities pass pay transparency laws, it has become important to put a strong methodology in place for establishing compensation and that companies are aware of the competitive market.
As talent acquisition continues to grow in complexity and distributed workforces become more commonplace, businesses are focused on how best to address geographic differentials. Careful consideration needs to be given to this issue, as there are far-reaching implications for companies. One size does not fit all.
As compensation decisions are made, they must be reflected in current programs. An annual review of individual salaries compared to their respective grade range should be conducted in the form of Position-in-Range (PIR) or Compa-Ratio. This analysis will shed light on any potential pay equity or compression issues within grades and job families and allow the company to determine if any adjustments are warranted to rectify these issues.
In addition to the above, periodic audits should be conducted to address the following:
The following are the suggested steps for updating a Salary Administration Program:
While the initial design process is well-intended, Salary Administration Programs can fail for many reasons, namely, the lack of:
Companies should consider the reassessment of their Salary Administration Programs, along with all their compensation plans, as a vital and ongoing part of the Program's success. Assessing the Program to measure its efficiency and see that it continues to meet your business's needs and is perceived as a credible and functional part of the human resources process will enhance your company's ability to remain a competitive force in the marketplace.
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