A pay structure is built in a fixed order: decide where you sit against the market, fit a line to market data, adjust it for that decision, and the adjusted line becomes your midpoints.
Pay policy identification
Pay policy identification is determining whether the organization wants to lead, lag or meet the market in compensation. Policies can differ across job families and levels.
- It is not FLSA classification, which is a legal exercise.
- It is not grade and range construction, which follows the policy decision.
- It is not benefits design.
Lead-lag
The BASK's four philosophies are lead, lag, match, lead-lag. An employer that pays base salaries below the market median but funds an aggressive bonus that lifts total cash above the median for strong performers is using lead-lag — lagging on one element while leading on another. Calling it "lag" describes only the base pay half and ignores the bonus.
The market pay line
- A market pay line is built by simple regression of survey pay (Y) on job evaluation points (X), then adjusted for the lead or lag policy.
- Not by plotting internal salaries, not by a mechanical minimum-setting rule, not by ranking jobs.
- The line always runs through the midpoint of each pay grade. The adjusted predicted rates become the midpoints. It does not run through the minimum (which would put the whole range above market) or the maximum (which would put it below).
Applying the policy
Adjusted rate = predicted rate x (1 + lead), or x (1 - lag).
Worked example: the regression predicts $60,000 at a given point total and the organization has a 3% lead policy. 60,000 x 1.03 = $61,800, and that becomes the grade midpoint.
The traps are applying 5% instead of 3%, or multiplying by 0.97 — that is a 3% lag, which moves the midpoint the wrong way.
Predict, adjust, then set midpoints.