Is Your Compensation Structure Still Supporting Your Business Goals?
Organizations evolve, markets shift, and employee expectations continue to rise, yet compensation structures often stay the same. Regular reviews help ensure your salary architecture aligns with business goals, supports equitable pay practices, and keeps pace with today’s competitive talent landscape. Without these regular assessments, businesses risk misalignment caused by outdated data or unnoticed pay gaps, which can hinder growth and retention. Implementing a review of your salary structure construct allows you to address these risks proactively and maintain a fair, competitive pay strategy.
According to Newport’s Compensation, Retirement and Benefits Trends report, over 80% of larger organizations have formal salary structures in place, compared with about 50% of smaller organizations. This gap suggests many employers may be missing opportunities to strengthen pay governance, clarify career paths, and improve consistency across their workforce.
Why Compensation Structures Fall Out of Alignment
Even well-designed plans can lose effectiveness over time. Rapid market changes and competitive pay pressures often outpace internal updates, leading to a disconnect between what you offer and what talent expects. Evolving job roles may create internal leveling inconsistencies, while hidden pay equity issues, such as salary compression or clustering at range minimums, can quietly develop.
Additionally, talent retention challenges often tie directly to unclear pay progressions. When administrative or legacy systems limit updates, these issues compound, weakening your overall pay governance. Reassessing your compensation strategy ensures your salary architecture remains robust enough to support your workforce.
A well‑structured framework does more than organize pay ranges—it supports transparency, cost management, and clear growth pathways. If it has been a while since your structure was reviewed, now is an ideal time to assess whether it still aligns with your long-term talent strategy or whether partnering with compensation consulting specialists could support that work.
Key Elements to Review in Your Compensation Structure
If it has been a while since your last review, assessing specific components of your framework is an ideal starting point.
1. Midpoint Differentials: Do they still reflect your strategy?
Midpoint differentials determine how many salary grades exist within your structure and how distinctly roles are separated. Evaluating whether your ranges still align with your compensation philosophy can help ensure clarity and mobility across roles.
- Smaller differentials (8–10%) → Create more salary grades and allow for finer distinctions between similar roles. These structures support organizations that value incremental progressions and nuanced job leveling.
- Standard differentials (15–20%) → Offer a balanced approach with fewer grades and clearer distinctions between levels. This is a common structure for many organizations seeking a straightforward but flexible framework.
- Broadband differentials (50% or more) → Enable wide pay ranges with fewer formal boundaries. Broadbanding supports skill‑based progression, career mobility, and simplified administration although it does require strong managerial discipline and attention to pay equity.
The percentage reflects the difference between the midpoint of one grade and the midpoint of the next. This spacing affects how tightly or broadly jobs are grouped and how many steps exist between roles.
Tip: Consider whether your organization benefits more from clear step‑by‑step progression or broader movement within levels. Regularly reviewing midpoint spacing ensures your structure continues to reinforce the behaviors and mobility your organization values.
2. Range Spreads: Are they aligned with role complexity?
Range spreads—how far the minimum and maximum sit from the midpoint—affect how employees grow within a grade. Reviewing your spreads helps ensure each role has an appropriate range to allow for development and growth based on the complexity, responsibilities, and learning curve for that role.
Narrow spreads (20–40%)
- Best for roles with shorter learning curves
- Provide predictable pay progression
- Work well for operational or entry‑level positions
Wider spreads (35–75%)
- Support roles with broader responsibilities or longer mastery timelines
- Offer more room for growth within the same grade
- Often used in professional, technical, or leadership positions
The percentage represents how wide the pay range is—from minimum to maximum. Wider ranges allow more pay growth within a grade; narrower ones create tighter guardrails.
Tip: Review whether your range spreads are distributed evenly around the midpoints (minimum to midpoint vs. midpoint to maximum). In competitive talent markets, accelerating movement to midpoint may support retention, while wider upper halves can help keep high performers engaged where promotional paths are limited.
3. Promotional Opportunities: Does your structure support talent growth?
Compensation structures influence how employees move through the organization. If promotional opportunities are limited, your salary architecture can still support development by allowing meaningful salary progression within each grade.
Doing so can help:
- Reduce unnecessary title inflation
- Retain high performers without over‑reliance on promotions
- Encourage career development within well‑defined salary ranges
Tip: Assess how much salary growth is possible within each grade and whether that aligns with actual advancement opportunities in your organization. This helps ensure your structure supports talent development rather than encouraging title changes as the only path to higher pay.
4. Pay Equity: Are your practices supporting fair, consistent decisions?
A well designed salary structure is one of the most effective tools for supporting pay equity. When ranges, levels, and progression guidelines are clearly defined, organizations can more easily identify and correct potential disparities.
A strong structure supports:
- A consistent framework that limits discretionary or inconsistent decisions
- Transparency around levels, ranges, and career paths
- Data driven insights that make it easier to identify gaps by gender, race, or other protected characteristics
- Market alignment to help maintain competitive and equitable ranges
Tip: Pair your structure review with a pay equity analysis to identify trends—such as groups clustering near minimums or progressing at different rates—and address underlying drivers early.
When Should Organizations Review Their Compensation Structure?
Determining how often to review a salary structure depends on your business environment, but best practices suggest an annual market analysis with a more comprehensive architecture update every few years.
Immediate reviews may be necessary during periods of rapid growth, mergers and acquisitions, or organizational redesigns. Additionally, when market premium spikes, mid-cycle adjustments ensure you do not lose top talent. Signals that your structure is outdated include high pay compression or unexpected turnover spikes.
Action steps to strengthen your compensation structure
- Evaluate midpoint differentials to ensure they reflect your intended progression model and support clear career movement.
- Review range spreads to confirm they align with role complexity and talent needs.
- Assess growth pathways within each grade to ensure employees have meaningful development opportunities.
- Conduct a pay equity review alongside your structure audit to uncover patterns and ensure fairness.
These actions help reinforce a compensation structure that supports employee development, pay equity, and business alignment.
How Newport’s compensation experts can support your strategy
Modernizing your compensation structure doesn’t have to be overwhelming. Newport’s compensation consulting specialists partner with organizations to design and refine salary structures that promote clarity, support pay equity, and align with long‑term business objectives.
Our team offers a brief Salary Structure Snapshot to review your midpoint differentials, range spreads, and grade architecture. If desired, this can be followed by tailored recommendations grounded in market data and best‑practice guidance to support your organization’s goals. Whether you are building a structure from the ground up or optimizing an existing framework, Newport’s experts can help you create a compensation program that attracts, motivates, and retains top talent.
Our suite of expert services includes:
- Total Rewards Philosophy Statements
- Workforce and executive compensation and benefits benchmarking
- Annual and long-term incentive program design
- Transaction and retention bonus plans
- Deferred compensation and supplemental executive retirement plans
- Association or custom compensation and benefit survey initiatives
- Board compensation and CEO evaluation support
Frequently Asked Questions About Compensation Structures
What is a compensation structure?
A compensation structure is a framework that defines salary ranges, grades, and levels for various roles within an organization, ensuring consistency and fairness in pay practices.
What is a midpoint differential?
A midpoint differential is the percentage difference between the midpoint of one salary grade and the midpoint of the next. It establishes the separation between different job levels.
How wide should salary ranges be?
Salary ranges typically vary based on role complexity. Operational roles often have narrower spreads (20–40 percent), while professional or leadership roles have wider spreads (35–75 percent) to accommodate longer learning curves.
What drives pay compression?
Pay compression occurs when new hires are brought in at salaries similar to or higher than existing employees in the same role, often due to competitive market pressures or outdated salary structures.
How often should a company update its salary structure?
Companies should typically conduct a market check annually and a full structure review every two to three years, or during major organizational changes like mergers or rapid growth.
Conclusion
Routine compensation structure reviews are essential for maintaining alignment with your long-term talent strategy. By ensuring your pay governance and salary architecture are up to date, you support fair pay practices and clear career paths for your employees.
Request a Salary Structure Snapshot today to start optimizing your compensation strategy.
