How does business size affect pay and reward structure?

At Paydata, we help businesses of all shapes, sizes, structures and industries to create bespoke pay and reward systems that benefit their culture and goals. Following twenty years of specialising in employee reward management, we understand that every organisation is unique. A tailored approach is the most effective way to create a successful pay and reward structure.

One of the key factors that impacts the design of a pay and reward structure is the scale of a business. The size of an organisation is an important point we keep in mind when constructing our pay structures and it is more complex than simply designating a business as small or large. To truly find the best option, it’s important to keep in mind what base structure and strategy is best suited to that organisational shape.

Our team at Paydata have created this short analysis piece to highlight how some of the most common organisational structures relate to their chosen pay and reward structure. Whilst this is not a definitive list, it makes a good starting point when considering how business size affects pay and reward systems. We recommend reading our guide to the most common types of pay structure before reading this post, as we will directly reference some of these structures.

Small and medium-sized businesses (SMEs)

SMEs can be significantly simpler from a pay and reward perspective. Often, the pay structures can be rigid and straightforward, using individual pay rates for each job role within the organisation. The HR department can realistically manage the individual salaries and benefits of each staff member when there aren’t many to deal with. Furthermore, smaller businesses are usually tight-knit, allowing individuals to more easily raise pay and reward concerns with HR compared to larger organisations where corporate policies and processes make individual adjustments less likely.

From a benefits perspective, HR can more readily track and measure the total cost and value of the additional rewards that employees receive. In general, pay and reward structures in small businesses can be easier to adapt, change, amend and work with. Size doesn’t have a huge impact on pay and reward until a business reaches a critical mass, which we turn to now.

Large businesses

Larger businesses are significantly more complex, requiring more intricate systems that can both manage the workload of the HR department and offer employees suitable rewards to keep them satisfied and motivated. In these organisations, it’s not just about their size, it’s also about what aspect of the business is experiencing particular recruitment and retention pressure (this may be regional or by role type) and how that translates into pay and reward struggles.

An organisation like the NHS faces very different pay and reward issues when compared to a huge corporation like Google. Both employ thousands of people, but the differences in their hierarchical structure mean that they require different pay structures and reward schemes to attract and retain the talent they need.

We explore some of the most common business profiles for large organisations and the pay and reward systems that work for them.

A high number of different job titles

Building on the example of the NHS, some organisations may not have a vast, internationally based workforce but they remain large enough to suffer from pay and reward issues. Large businesses with numerous different job titles have trouble utilising individual pay rate systems because it would take a huge amount of work to manage the wages and benefits of so many different roles.

Not only would reviewing staff wages be challenging, but tracking the market average for so many roles would take a very long time. As a result, maintaining satisfaction and retaining talent could become difficult. Businesses facing this issue often utilise a broadbanding pay structure which groups jobs of relative equivalence into pay grades or salary bands. Through this pay grade system, staff can clearly see their route to remuneration progression and HR can make fast and broad changes to the pay and benefits system without manually changing a host of different job titles.

Broadbanding introduces a useful framework that makes it effective in rapidly changing organisations’ approach to pay for a range of different roles.

Many employees but fewer job titles

On the flip side, there are huge and established corporations that have thousands of employees, with a standardised system of job titles. A great example of this is restaurant chains, where most of the ground staff keeping the business operational on a day-to-day level are covered by the same dozen job titles.

The main issue with individual pay rates in this scenario is that there is very little pay progression offered to staff and there is a risk of undermining morale for those who do not receive an increase compared to their colleagues. To avoid this, the use of individual pay grades as opposed to pay rates can make a huge difference. Individual pay grades simply apply a pay grade to each given job title, providing staff with clarity and an understanding of what they need to achieve to reach the next step. It is a simple but effective change, especially when combined with staff bonuses or a benefits package.

Medium-large but lacking promotion opportunities

Finally, businesses that have a suitable remuneration system can still face rewards challenges. Employee satisfaction is a very complex topic with many variables, most of which an employer can either directly control or assist with, particularly when it comes to the opportunity for progression.

The majority of high-quality, talented employees don’t want to stagnate in a single role. Instead, they desire a clear understanding of progression and learning alongside the annual wage that they receive. To achieve this, medium-sized businesses often opt for the implementation of job families.

Job families can be implemented in a variety of ways, but usually involve splitting a role into levels of seniority e.g. junior, regular and senior. New team members can enter at the junior level and still have a progression path. Alternative options are numbered levels of seniority which offers even further developmental opportunity for longer-lasting growth and loyalty. Whatever the approach, job families can make a huge difference in businesses that lack the space, means or need for staff promotions.

Conclusion

It’s important to keep in mind that these are the most common business shapes that have a notable effect on employee reward structures. In reality, pay and reward systems cannot be cut and paste from one business to another; every organisation’s unique challenges require a holistic approach to pay and reward design.

At Paydata, we specialise in providing completely bespoke pay and reward design services, leveraging a vast quantity of industry salary data and years of experience to create effective, goal-centric solutions. If you are looking to create a new approach for your organisation, please get in touch with a member of the team and we will gladly talk through the challenges you face and how we can help to achieve your objectives.