Question

Your organization has two business units: one is a mature or established unit which manufactures products which are competitive on price. The product and manufacturing processes have few technological changes. The other business unit is a brand new start-up which uses high levels of technology in its products which are heavily regulated by the federal government. You are the senior HR professional of the organization and you are making recommendations to other members of the senior team on pay, benefits and forms of recognition.

• Which pay structure would you use for each business unit? Explain the decision process(es) used.

Answer 1

Pay structures are broadly classified into four types, namely, individual ranges (involves fixed salaries based on job roles), broadband structure (involves grouping of comparable jobs under handful of pay grades), job family structures (involves grouping of similar job roles, while separating individual grade based on person’s seniority and knowledge) and pay spines (involves a simple company-wide structure).
Business unit-1:
it is a mature unit, with limited technological changes. So, it is safe to say, the job roles progress but do not change drastically over time. Hence, for this kind of unit, job families pay structure will be appropriate, as it will allow the management to create job families for different functional areas. The transition from a role to its next level will require experience, skills/knowledge, business focus, and loyalty, thus making it apt for a mature unit like this one. This structure offers tight control on salaries, where reviewing and refining payment systems within job families is easy, without disturbing the rest of the organization.
Business unit-2:
This is a start-up unit, with high levels of technological changes, regulated by the federal government. Broadbanding can be used in this unit. Here, management can define a handful of pay grades to keep the system simple, with multiple increments within each grade. This will allow the company to create multiple pay grades for each level. The pay ranges within grades will be defined based on the median of average wages, which allows for transparency and ease of documentation or federal verifications. This system will allow for faster communication from the top to bottom as it makes the hierarchy flatter, which is essentially required with start-ups with a high level of technology products. This will help in keeping the unit pay structure agile and thus help in shifting between systems easier and effective. It also will give enough room for lateral movement.