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Pay structures are one of the most difficult aspects of HR for businesses to pinpoint. Identifying the nature of your business, the needs of your employees and the requirements of your business model are challenging in themselves but balancing these needs in a single, unified pay structure is critical to the success of organisations.

Often, the best way for organisations to find the right pay structure is to investigate the systems that competitors are using. Examining other systems can give you a sense of which elements might work best for you, especially in very niche or emerging sectors, inspiring and generating ideas for new approaches to pay.

Analysing market practice to inspire ideas

For businesses that have experienced a rapid growth period or are finding their current system no longer fit for purpose, locating information on other pay structure systems can be difficult. To help, we have analysed three successful global businesses, covering both private and public sectors.

Read our guide about different types of pay structures

At Paydata, we work with businesses around the globe in countless sectors and industries, crafting bespoke reward packages and payment structures that deliver business growth and development. We highly recommend gaining an understanding of the different types of pay structure as context before reading the following pay structure analysis of three global companies. Please don’t hesitate to get in touch if you have any questions about pay structures, how they work, or how they might benefit your business.

Uber and Transportation Network Companies (TNCs) – Commission-Driven

Uber, along with similar services like Lyft, has been emerging over recent years, taking the world by storm through a cheap and affordable ride-share service. These services, dubbed transportation network companies (TNCs), link drivers with customers via a simple smartphone application.

For TNCs, pay structure is an essential part of their business model. For most organisations, pay is important for employee retention, satisfaction and productivity, but for TNCs, the payment structure is also their central revenue source.

TNCs have pay structures unlike most other businesses, split into two halves. On one side, they utilise standard systems for their software engineers, customer service agents and other corporate staff, whilst on the other hand, the actual day-to-day fundamentals of their business involve individual drivers who are paid very differently.

For example, Uber brings together drivers and passengers, defining a fee dependent on the length of the journey. Drivers pick up the passenger and take them to their destination, similar to a normal taxi service. The difference is that Uber does not employ the drivers on an hourly or annual rate. Instead, the drivers are paid a proportion of the journey’s cost, which is agreed with the passenger up front, based on key factors like the distance travelled. Uber takes a booking fee and safe driver’s fee to cover business operations and generate income.

Whilst this is ultimately a commission-based pay structure, this approach differs so drastically to the norm because there is no base salary available to the drivers. Often, commission serves as an additional benefit rather than as the primary salary source. Whilst car salesmen have predefined salaries and earn extra based on the value of the cars that they sell, Uber drivers have no guaranteed pay, making everything based on the work that they can get,  journey lengths and ultimately – how much Uber charges the customer.

There are countless advantages and disadvantages surrounding this type of pay structure, with controversy surrounding this pay structure for self-employed black-cab drivers who have campaigned against Uber and how it operates. The key point to consider is that this only works for services that connect two individuals that are not directly employed by the organisation – Uber has 45,000 registered drivers in London alone. For many tech start-ups, this pay structure is proving useful, though not necessarily the best option. Whether it’s right for you depends on your organisation’s vision, goals, purpose and industry.

The National Health Service (NHS) - Broadbanding

Moving away from a private, profit-driven organisation, the NHS is a public body that aims to help individuals. Funded by tax and national insurance, its pay structure is significantly more rigid than that of TNCs.

As many public services do, the NHS utilises a broadbanding pay structure. Broadbanding groups jobs that are generally comparable, offering staff within those jobs the same pay. Within each band is a pay grade that offers a minimum wage and a maximum wage. Based on experience and performance, staff within each band of jobs may move up each pay grade, achieving a higher income as they go.

This structure is essential for the NHS because of its size. The organisation is vast and complicated, employing thousands of different individuals and hundreds of different job titles. Traditional pay structures with individual pay rates for each role would struggle to define salaries for so many different job roles, especially when evaluating whether pay levels are fair based on market averages.

For the NHS, broadbanding offers huge advantages. Staff know exactly which band they fall into and in turn, the maximum pay they can receive in their current role. Staff also know exactly how to increase their wage, whether it is based on loyalty, length of service and performance on the job. This is motivating and drastically increases employee retention.

Finally, broadbanding is a flexible system. With tens or even hundreds of job roles sitting within each band, it is much easier to manage the pay of the organisation. Instead of having to alter and research the pay for every individual title, the NHS can simply change the pay grade within an entire band, generating significantly less work. Furthermore, the hierarchy within the organisation is much flatter, enabling management to enact changes quickly and easily.

Broadbanding works well for large organisations with a host of different job titles and roles, particularly those that are in a constant state of change as technology develops and grows.

McDonald’s – Pay Ranges

McDonald’s has often been hailed and recognised for its managerial development program – how does its pay structure support this? McDonald’s operates a pay range system, in which each job role has a minimum and maximum hourly or annual pay based on its requirements and needs.

Pay ranges work for McDonald’s because of the company’s size and reputation. The details of the job description play a significant part in deciding which pay range the employee fits into, as well as where they sit within the range itself. This is particularly important at junior level roles – the Crew Member role – where pay ranges vary based on times being worked, experience and even the age of the employee.

Offering staff salary-based rewards for their work whilst ensuring that wage costs remain at a profitable level is a difficult balance to strike, especially for larger organisations. McDonald’s requires many junior level staff to ensure the business remains profitable and pay ranges enables the remuneration costs for these members of staff to be closely monitored and managed.

With individual pay rates, each staff member would have a completely unique salary, varying in pay at a manager’s discretion. For staff working long hours in a stressful environment, this system offers no clear path towards progression or growth, damaging satisfaction and productivity. In addition, storing and managing each individual’s wage change would be a huge strain on resources for the HR team at McDonald’s and would make monitoring the pay structure’s profitability infinitely more difficult.

In contrast, pay ranges offer the ability to set employee wages by group rather than by individual. This would be difficult in an overly complex company with hundreds of different job titles but fortunately, McDonald’s benefits from having a fairly limited list of job titles. With a short list of available titles, the employees can be grouped together easily, which is where pay ranges make an impact, designating a specific salary range for each job role in the organisation. McDonald’s is able to manage and calculate the majority of their wage costs easily whilst offering staff a much clearer path towards increased pay and progression to boost productivity and satisfaction.

It’s important to note that many McDonald’s restaurants are franchised and the franchiser decides the pay ranges. McDonald’s will still set guidelines for staff pay in their directly managed restaurants.

Pay ranges are a highly versatile pay structure that can make an impact in a host of different businesses and industries. The system is truly valuable in larger organisations with a limited list of job titles, to make salary management easier whilst simultaneously giving employees room for growth.

Tailoring your pay structure to your organisational objectives

Pay structures, like most things in business, are of limited help when it comes to cutting and pasting exact copies from one situation to another. Whilst these three businesses have seen incredible success in their respective fields, it doesn’t mean that their reward systems perfectly suit your organisation. For a bespoke, tailored approach to pay structures built around you and your business, get in touch with a member of the Paydata team. We have been producing bespoke reward systems for over 20 years, providing our clients with proven solutions that are custom built for their business’ unique needs.

For more information, explore our reward strategy services, read our guide to the different types of pay structure, or contact us.

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