Planning a “Next Generation” Salary System

The field of salary management is at a crossroad. Traditional salary management practices were developed for an organization model that has largely disappeared. The critics of those practices were first heard a decade ago. The “next generation” program model moves in a different direction but is still not fully developed. The newer salary systems reflect common core principles; however, there are unresolved design issues that affect system management. A key change is the shift in control from human resources to line managers, which makes it important to create simple, transparent and credible programs. The experience of three companies—Dow Chemical, IBM, and Marriott Lodging—confirms that managers can effectively handle this new role when they are provided with adequate information. This article looks at the focal issues in designing a next generation salary system. It considers the rationale for assigning jobs to salary bands and for managing individual salaries within the bands. It also suggests criteria for evaluating system changes.