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Salary Structures are of great significance for every HR as well as Payroll professional. But it is been widely observed that even the most informed professionals are unaware and uninformed about the technical, policies and practices that are considered in designing a salary structure.

DKM Online is one of the leading payroll companies in India and our clients often ask us about Salary management and how one can offer a perfect frame for salary structure. This post is done to underline the policies and practices in salary management.

DKM Online provides Payroll services to maximize productivity by channelizing timely and accurate salary processing, reimbursements, managing loans and advances etc., together with attendance and leave management system,  compliance managed services as per the Indian Payroll compliances and what not. We provide complete HR Payroll solutions to business in India and abroad. Our Payroll Outsourced Services are accessed by MNCs in India and overseas.

Following is a list of Policies & Practices in Designing Salary Structure with some special considerations for global markets and multi-country payroll requisites:

The Compensation Philosophy. A well-planned and structured compensation policy provides valuable guidance for the development of a salary structure.  In large organizations, there is often a corporate policy which forms the basis for local policies.

Market Research and Competition Analysis. With respect to the compensation policies you must keep an eye on the competitors. A good employers prefer at least two survey sources. Most organizations do competitive market surveys as your competition might be paying very competitively which results in  a better employability ratio.

Benchmark Jobs.  Benchmark jobs are those that are representative of roles found across many organizations – standard roles such as Manager, Accountant, Payroll Administrator, Secretary, Clerk and Driver.   These jobs will appear in almost all the surveys thereby providing varied comparisons.

Where do you stand? There are several ways to do this. If you have a lot of benchmark jobs, tabulate the average of all of the roles in the same internal level or grade. Weighted averages incorporating number of incumbents associated with each survey data point is a common approach. Select the market reference from the survey most appropriate under your policy.

Calculate the compa-ratio. This is the ratio of your data to the market — 100 means fully comparable, while a ratio under 100 indicates a below market position, and over 100, above market. There are different approaches to summarize data — by position, by grade, etc. Whatever approach you use, the compa-ratio analysis will illustrate which parts of the organization are competitive against the market and which ones require some attention!

Budget and Allocation.  This is a critical step you can calculate the average difference between your current scale and the market.  This indicates about how much of an increase would be required to make your scales fully comparable to the market.  Your internal budget constraints, though, will dictate how close to this ideal you can achieve. This is the start of an exercise which will repeat many times, until you get the desired result.  Build a model of your organization, ideally with the number of incumbents in each grade.  Using your overall percentage of market and budget numbers see how close you can get to fully comparable to the market, and how much it will cost, later tweak the data a bit.

And before we conclude, please understand that the basic objective of a perfect salary structure should have the following features:

  • Tax efficiency
  • Employer & Employee centric but it should reduce the employer’s liability.
  • It should be as per the Payroll and Statutory Compliances

If you are looking at redesigning the salary structures or planning to introduce payroll processes in your business, please feel free to get in touch with us here.