---
title: "No Worries About Salary Structure! Three Key Issues in Salary Adjustment Plans—All Practical Tips!"
description: "It's said that the winter is hard to get through. Facing the harsh market environment and looking at your KPI, are you worried about how to plan employee salaries for the coming year? Today, we'll specifically discuss how to conduct annual salary adjustments scientifically. 1. Annual salary adjustment: What is the most reasonable way to adjust salaries? For annual adjustments, there is generally a 'systematic adjustment,' which means updating the salary structure each year and then making corresponding adjustments. Additionally, from the perspective of reasons for adjustment, the two common types are 'performance-based adjustment' and 'promotion-based adjustment.' Performance-based adjustment refers to adjusting salary based on employee performance without a change in position, but an important step before that is reviewing 'person-job fit.'"
author: "New Distribution"
publisher: "New Distribution"
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published: "2017-01-04"
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# No Worries About Salary Structure! Three Key Issues in Salary Adjustment Plans—All Practical Tips!

> It's said that the winter is hard to get through. Facing the harsh market environment and looking at your KPI, are you worried about how to plan employee salaries for the coming year? Today, we'll specifically discuss how to conduct annual salary adjustments scientifically. 1. Annual salary adjustment: What is the most reasonable way to adjust salaries? For annual adjustments, there is generally a 'systematic adjustment,' which means updating the salary structure each year and then making corresponding adjustments. Additionally, from the perspective of reasons for adjustment, the two common types are 'performance-based adjustment' and 'promotion-based adjustment.' Performance-based adjustment refers to adjusting salary based on employee performance without a change in position, but an important step before that is reviewing 'person-job fit.'

It's said that the winter is hard to get through. Facing the harsh market environment and looking at your KPI, are you worried about how to plan employee salaries for the coming year?
Today, we'll specifically discuss **how to conduct annual salary adjustments scientifically?**
1
**Annual salary adjustment: What is the most reasonable way to adjust salaries?**
For annual adjustments, there is generally a "systematic adjustment," which means updating the salary structure each year and then making corresponding adjustments.
**Additionally, from the perspective of reasons for adjustment, the two common types are "performance-based adjustment" and "promotion-based adjustment."**
Performance-based adjustment refers to adjusting salary based on employee performance without a change in position, but an important step before that is reviewing "person-job fit."
Many companies, not just startups, tend to determine employee levels based on salary, rarely checking whether the employee truly matches the position. **In fact, the correct approach is to ensure that the incumbent is competent before making performance-based adjustments.**
Under the premise of reasonable person-job fit, then look at "salary competitiveness" and "performance level."
**Salary competitiveness coefficient = employee salary / market salary for the position.** The lower the value, the less competitive the salary, or the company is not paying what the position deserves; the other dimension is performance level, which we measure using "performance grades."
From this, a "salary adjustment matrix" can be created, with performance grades (A, B, C, D, E) as rows and competitiveness coefficients (<0.8, 0.8-1.0, 1.0-1.2, >1.2) as columns.
(As shown in the figure below, click to enlarge)
1. The top-left corner represents the most outstanding performers who are currently the least competitive in salary. Theoretically, they should receive a larger salary increase this year to prevent talent loss;
2. For the worst performers, it is recommended to freeze their salaries, require them to improve performance, assess their competency for the position, and consider demotion or termination;
3. And so on, rationally allocate salary adjustment resources to help plan the salary budget.
2
**Salary structure: How can small and medium-sized companies build it?**
This is a long-term task. As the company grows and job categories increase, a systematic salary structure needs to be built. For existing structures, updates can be made based on major salary reports, adjustments to fixed-to-variable ratios, and additions to salary tables.
**The most important part of building a salary structure is the "job structure,"** which is also the basis for promotion-based adjustments mentioned earlier. The most important part of the job structure is the "job level structure." Only through a job level system can we find corresponding market salary data to build the salary structure system.
Many HR professionals in the internet industry believe that it is sometimes difficult to define what a position specifically does, so they prefer to be driven by "competency"; **but defining job value ultimately returns to the essence of business. What matters more is value and contribution, not how strong the person's ability is.** Because even if a person is very capable, if they do not deliver corresponding value in the position, the company should not pay a high salary.
Therefore, for both small and medium-sized enterprises and mature internet companies, we believe that **the job value should be the main driving factor in designing the job level system.** Only in sequences where competency has a significant impact or where competency differences are large should competency be given more consideration.
Regarding the "value assessment" of positions mentioned earlier, from a professional evaluation perspective, it involves assessing professional knowledge, leadership responsibility, complexity of problem-solving, scope of impact on the organization, difficulty of interpersonal relationships, etc.
In the startup phase, we can **start by defining what contribution and value each level should achieve,** defining the job level for each position, so that value distribution/pay can be justified.
Another important concept in the job structure is "job sequence." Job sequences and job levels together help lock in market salary data, which in turn helps design the salary structure.
(Click to enlarge)
In the figure above, we list the executive sequence, management sequence, and other professional contribution sequences such as technology, product, operations, and functions. By using the upper, median, and lower limits of each job level's salary, we design the salary range.
Through classification, we can also manage the fixed-to-variable ratio. The variable part can be in cash form, such as **year-end bonuses, special awards, or the estimated value of other long-term incentives.**
Because executives in startups often share in options/equity rather than cash; while for grassroots employees, they may not care much about options/equity and instead value monthly salary more.
So different groups have different incentive methods.
3
**Salary budget: How much will we pay next year?**
**The annual salary budget generally consists of two parts: "stock budget" and "incremental budget."**
  * The stock budget includes market salary, performance adjustments, and promotion adjustments.
  * The incremental budget involves future business changes. The company may need to add new personnel and new positions... Specifically, from three aspects—position planning, salary standards, and staffing—make plans for the number of positions, market salary, and number of personnel; then make the total salary budget.
**From the perspective of key factors affecting the salary budget,** at the macro level, they are divided into three categories: "business characteristics," "organizational requirements," and "talent strategy."
Business characteristics are also influenced by "profit model" and "business fluctuation cycle"; organizational requirements need to consider "business development stage," "financial affordability," and "company strategic planning." These all affect the salary budget.
After reading the above, do you have a new understanding of annual salary adjustments?
A well-functioning and fair salary system can not only have a strong external appeal but also greatly motivate internal employees to achieve organizational goals and create high-quality performance.
**In fact, the most important thing in annual salary adjustment is to combine the company's clear development strategy, organizational system, clear job responsibilities, and development channels,** adjust the corresponding salary strategy, and achieve a salary management system truly based on job value.
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