When working on hiring new employees or promoting older ones, IT companies will typically establish a pay scale. Otherwise known as a salary structure, pay scales are models that define how an employee’s salary is determined or even increased as they’re promoted.
Pay scales are a good planning tool in the IT industry. In addition to helping employers plan their expenses for talent, it also allows prospective talent to assess if they’re being fairly compensated for their skills, experience, and work.
Many of these pay scale structures exist. One example is the universal pay scale, which standardizes the salary for all workers regardless of geographical location or living costs. This can be a radical break from other structures for those in the IT sector.
Here, we’ll cover the pros and cons of universal pay scales in IT.
How Pay Scales Work
Before delving into universal pay scales as such, it helps to clearly define these systems and their place in the recruiting process. Pay scales are essentially systems that clearly define salaries based on specific variables. They’re a great way of managing expectations, letting employees know how much their efforts are worth, and motivating them to progress in the company.
Some of the variables included while making pay scales may consist of:
- Grades or levels – Jobs might be divided into multiple grades based on their expertise, experience, skills required, and responsibilities. For specific pay scales, this is a huge part of determining salary.
- Different salary ranges – Companies might introduce a low, mid, and high point for salaries within the same grade. The low end is the lowest accepted salary, while the high point is the highest amount within the grade.
- Progression – Pay scales will also determine consistent and transparent ways an employee will progress. Doing so offers them a clear roadmap that they can follow during their time in the company from the very start.
- Market competitiveness – Competitiveness is another major consideration when using pay scales, especially within the IT sector. When talent is in high demand, companies will adjust their pay scales to reflect that.
- Geographical location and living conditions – Where you work, and the cost of living there is an important pay scale variable for companies. Your salary might be adjusted depending on your living costs and where you’re based. This might be more prevalent with companies that have employees overseas.
Different pay scales will use these multiple factors for determining employee salaries. Some examples of pay scale models might include broadband, traditional, market-based, and universal.
What Are Universal Pay Scales and Why Are They So Different?
Universal pay scales turn traditional types of pay scale systems on their heads. Instead of basing employee salary on factors like market competitiveness, it offers a standardized wage to its employees regardless of their geographical location and living conditions.
That means that employees in the IT sector would all be given the same salary regardless of other aspects such as geographical location. Universal pay scales aren’t standard for most companies, as working out a salary fairly usually depends on the abovementioned variables. While this type of pay scale might seem shocking to some, it does have its advantages.
The Pros - Why Universal Pay Scale Can Be a Good Thing
Most IT companies use a wide range of factors for determining a salary. Instead of doing this, the universal pay scale standardizes salary for every employee regardless of their geographical location. Some of the advantages of this model include:
- Streamlining administrative planning – IT companies that embrace universal pay scales lose less time on administrative tasks. This allows them to allocate more resources towards other operations and internal affairs. It makes payroll management easier since the same model will be used for everyone.
- Easier for setting up remote work – Both executives and employees in the IT sector can benefit from remote positions with a universal pay scale. It makes operating from different countries easier to manage. Employees won’t have to worry about pay reductions because of their location.
- Fairness and equity – IT companies might particularly value equity and fairness amongst employees. A universal pay scale is how company policies and payroll management align with core company values.
- Easy employee mobility – For remote IT workers, the flexibility to travel or relocate is a big part of their working environment. By adopting a universal pay scale, they can travel from country to country without complications or changes in terms of salary.
- Attracting top IT talent – With a standardized pay scale, top talent knows exactly what to expect from companies, making it easier to seek them out and potentially form long-term collaborations.
It’s worth mentioning that the exact benefits will vary. Brands that have overseas operations and embrace remote work might see the benefits of a universal pay scale. However, companies that stick to one country for hiring talent may not.
The Cons - Why Universal Pay Scale Might Not Be the Best Option
While there are certainly some advantages to adopting a universal pay scale, there are a few drawbacks. The simplistic salary approach might not be the best choice for company culture or productivity. Some specific drawbacks might include:
- Cost of living issues – Some employees might benefit from the geographical location not affecting their salaries. Others might find the standardized salary to be too small for living comfortably. In the long run, a universal pay scale might increase turnover rates and fail to attract talents with higher living standards.
- Minimizes competitiveness – Many might find that having a universal salary lowers competitiveness between workers in the company. Top-notch talent may also be attracted to competitors that offer higher pay and a better chance to progress.
- Adjusting pay scale towards local jurisdictions – Adopting a universal pay scale might seem simple. However, executives must comply with local labor laws, conventions, and practices across multiple jurisdictions. Frequently, the time saved in designing a pay scale will be reallocated towards complying with laws.
- Creates budget constraints – Employers might need to raise all employees’ salaries to attract and keep talent from higher living standard countries. Executives may not have the funds to do this effectively, which can put severe constraints on budgets necessary for other services.
Alternatives to the Universal Pay Scale
While some companies might be ready to embrace universal pay scales, others might want to experiment with more traditional models and systems for employee compensation. Fortunately, there are multiple options from which to choose. Your choice might depend on your location, sector, and talent level. Let’s examine some other popular pay scale options within the IT sector.
Market-Based Pay Scale
Market-based pay scales have been increasingly popular in the last few years. This system bases a salary on market demands for a certain role or job. Employers will frequently look at what other companies are paying similar talent and then use this as a benchmark for their employees.
Doing so essentially does two things. Firstly, it allows a standard and equalized salary trend to emerge for talent. It also allows companies to negotiate salaries and create grades for especially experienced talent.
Traditional Pay Scale
The traditional pay scale considers various variables such as job complexity, expertise level, experience, and other aspects. It’s more hierarchical than other pay scales. However, it also offers more structure. Employees will know exactly what to do, receive a range, and potentially even move up the ranks. In traditional pay scale structures, mobility tends to be less dramatic with fewer short bursts but is more consistent. It’s a frequent option for companies that value long-term relationships with their employees. It’s also the pay scale where low, mid, and high point salaries will be used the most often.
Broadband Pay Scales
These scales give companies more freedom to design and allocate funds for employee salaries. Typically, they’ll establish a wide range between the minimum and maximum salary for a single role. From the start, the company will communicate the minimum and maximum one can expect for a certain job.
Because they have fewer pay grades, the range is much wider than traditional pay scales. While it may allow companies more control over salaries, it can lead to large disparities between employee payments. Some might find this unfair and seek another company for better compensation.
The Bottom Line with Universal Pay Scale
As of present, universal pay scales aren’t common in the IT industry. Some argue for universal pay scales because they promote equity and fairness. However, it may not be that simple. For some, the cost of living might be significantly higher and should not be overlooked. At the same time, a universal pay scale can help incentivize remote work and create an IT company standard for others to follow.
At the same time, complications may arise. These pay scales are difficult to implement and might strain the company’s budget. Before opting for it, IT businesses should consider other options like broadband, market-based, and traditional systems. While they may take more administrative management resources, they’re true and tested methods that work reasonably well for employee retention and satisfaction.
