Pay policy is one decision in SHRM's pay structure design method, and it is applied as a multiplication.
What pay policy identification decides
Pay policy identification is the process of determining whether the organization wants to lead, lag, or meet the market in compensation. That is all it decides. It is not job evaluation, not range width, and not benefit design — those are separate steps.
Policies can differ across job families and levels. A single lead, lag or match policy does not have to cover every job. There is no employee-count condition and no exempt-only restriction on this.
Applying the policy
Adjusted rate = regression-predicted rate x (1 + policy percentage), where the policy percentage is positive to lead and negative to lag. The adjusted predicted rates become the grade midpoints.
Work the examples:
- A 5 percent lead on a predicted $84,000: $84,000 x 1.05 = $88,200.
- A 3 percent lead on a predicted $52,000: $52,000 x 1.03 = $53,560.
- A 4 percent lag on a predicted $95,000: $95,000 x 0.96 = $91,200. Lag means paying below the market.
- A 2 percent lead applied to two grades predicted at $60,000 and $75,000: $61,200 and $76,500. The policy adjusts the whole line, not one job.
The traps
- The adjustment is multiplicative, not a flat dollar add. A 5 percent lead on $84,000 is $88,200, not $88,400.
- A lag multiplies by less than one: 0.97 for 3 percent, 0.96 for 4 percent. Getting $91,200 and calling it a match is wrong — matching the market means no adjustment at all.
- Midpoints are affected. A lag policy does not touch only pay increases.
- Doubling the percentage: 3 percent lead on $52,000 is $53,560, not $55,120.
One adjacent fact
WorldatWork's current Total Rewards Model leverages five strategic elements: compensation, benefits, well-being, careers, and recognition. Well-being stands alone as an element; it was not dropped, and it does not sit inside benefits.