How Compensation Systems Work and Why You Need One

A district’s pay system should support district goals for recruiting, retaining, and rewarding high quality employees.

The main components of a pay system are:

• Job families
• Pay structures
• Pay grades
• Pay ranges
• Control points
• System administration

A job family is a group of jobs involving work of the same nature but at different levels of skill and responsibility. Most districts have multiple job families, the most common being teachers, administrative/professional, clerical/paraprofessional, and auxiliary.

Within each job family exists a pay structure comprised of a series of tiered pay grades. Each pay grade contains groups of jobs with similar skill, effort, responsibility, and working conditions.

Each pay grade, in turn, has its own pay range, which is a span of pay built around a target rate within each grade. This target rate is then used to control the limits of each grade. These limits are the minimum, midpoint, and maximum values within a pay range used to control the link between pay and job value and the rate of employee advancement through the pay range.

To make sure pay is appropriately differentiated between each pay grade, the distance between one pay grade’s midpoint to the next, or the midpoint progression, should relatively be the same. Midpoint progressions that are too small offer little distinction between pay grades and can be difficult to administer. Larger midpoint progressions facilitate a logical grouping of jobs within each grade. Reliable midpoint progressions should provide midpoints that reflect market rates.

Finally, system administration involves developing and following a set of policies and procedures that guide pay actions and future maintenance of the total pay system. Major HR functions like initial placement, promotions, and salary adjustments should follow a standard blueprint, and the blueprint should be modified as needed over time.

Well-designed compensation systems, when aligned with the current job market, do more than just enhance an organization’s ability to attract, retain and reward top talent. They also serve the strategic functions of managing pay equity between job incumbents, providing meaningful career progression, attracting high-quality new hires, and controlling pay limits and payroll costs.

For more information on compensation systems, visit the HR Library. For community colleges, see Pay Systems Overview - College.