Once the reward strategy has been formulated, the next step is to identify the method or structures that will be implemented to categorize the personnel in order to match the efforts of the employees with the rewards they will get.
A reward structure is the way in which the organization decides to pay its employees. Reward structures can be based on a salary scale or a grade applied to different categories and groups in the organization. The main types of reward structures include :
- Graded Salary structure
The graded salary structure divides the salary range in bands. These grades are awarded on the basis of experience, performance or months of service.
Individual salaries range within a band for a particular role. The individuals are paid according to these job ranges.
For example, a person with greater experience, but a lower role will not get salary more than the maximum defined for that particular role notwithstanding the experience.
- Progressions or Pay Curves
Progressions or pay curves are directly related to the competency levels of the employees. In an organization that has professional or research staff, it may be difficult to analyze jobs in terms of their size. The actual work undertaken by each individual might depend on the experience and capabilities of that person. In such an environment, what is actually paid may depend more on the market rate for the job in question. Hence, it is appropriate to apply a progression curve, which enables the application of different pay raises at different levels of competence. This pay structure is based on the assumption that the individuals will not progress to a new level until they reached a predefined level of competence.
- Job Family System
In an organization, there are a number of distinct groups. The organization might want to train them as separate job families and therefore, apply different pay rates. For example, to differentiate between IT, accountancy , sales, administration and management jobs, there are separate pay scales with different progression rates.
- Spot Rates
Usually spot rate approach is adopted when there is a single rate for a particular job. The spot rates are based on just one amount being the appropriate amount. There are no entitlements to any progression. For example, a majority of construction workers are paid by the spot rate system.
- Rate For Age
This kind of structure is usually of an incremental scale that is linked to the age of an employee. It is based on the assumption that younger employees are on a learning curve, and that their value to the organization will increase with their growth in experience and maturity. This kind of reward structure is usually adopted in organizations using a traditional approach.
An individual’s Cost To Company(CTC) is decided on the basis of reward structures. The performance category awarded after appraisal directly imparts the CTC of the employee. In addition, the appraisal process provides an opportunity to focus on training and development needs.