Setting sail for a base salary structure

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Six frigates and a bottle of rum

On March 27, 1794, Congress passed the Naval Act authorizing President George Washington to provide, equip and employ six frigates that would form the first standing Navy for the United States.

Let’s take a look at the first US Navy salaries, fixed by the President (and not to exceed $27,000 per month total for the six frigates combined).

Position	Manning	Monthly pay
Captain	6	$75
Surgeon	6	$50
Lieutenant	22	$40
Chaplain	6	$40
Cook	6	$14
Marine	280	$14
Seaman	860	$13

With that came daily rations, which included at the time bread, rice, cheese, meat and, yes, spirits. The entire ship’s enlisted crew and midshipmen received a single daily ration, and the officers mess two rations with the exception of the Captain who received six, and Lieutenants who received three.

In 1799 a number of smaller ships were added to the fleet and this led to further pay scales segmentation: “the pay of captains commanding ships of thirty-two guns and upwards, be one hundred dollars per month, and eight rations per day; of captains commanding ships of twenty and under thirty-two guns, seventy-five dollars per month and six rations per day (…)”

It’s a good starting point to frame a total rewards approach: monetary and non-monetary returns provided to employees in exchange for their time, efforts and results. All framed by budgeting boundaries.

Fast-forwarding to the current context we can expand the perspective considering five elements:

• Compensation: cash provided for the service (fixed or variable)
• Benefits: programs to supplement the cash compensation
• Work-life: programs to support success within and outside the Company
• Performance and recognition: programs to foster individual alignment towards the Company goals and reward efforts and behaviors
• Development and career: programs to enhance skills and steer career goals

Building a total rewards strategy is combining these elements into tailored packages, perceived as valuable by the employees, to achieve and in time increase their engagement.

Let’s start by looking at the Compensation element, which we can split in two categories:

• Fixed Pay: non-discretionary reward defined for performing specific job responsibilities
• Variable pay: discretionary reward tied to specific results

Whether a Company decides to lead or lag in the market usually depends on available resources and the surrounding context: talents strategy, skills availability, voluntary turnover and direct competitors are all elements to be assessed before hammering down a definition.

Regardless of the internal strategy at some point everybody has to assess its position towards the market. There are two basic approaches to job evaluation:

• Market data approach: create a job worth hierarchy based on job descriptions and surveys data
• Job content approach: price some jobs as anchor points and scale the other relative internal values based on nature and level of the role

If you move within the first scenario you are closely matching your internal job description with a market job catalogue (and its midpoints), thus you are closely following the market. Your north is the survey job catalogue and then you receive the corresponding pay ranges for each role.

While if you move along the lines of the second scenario you end up making a point based ranking, and you steer more freely the internal strategy. The cornerstone here being that you have to pick a reliable point system and apply consistently in all the organization.

Let’s look at base salary first, what does my output from the job evaluations look like?

Position	Survey Code	Points	Mkt Salary
Captain	CP30	100	$70
Surgeon	SR20	75	$55
Lieutenant	LT20	50	$45
Chaplain	CH30	55	$40
Cook	CK10	28	$14
Marine	MR10	25	$12
Seaman	SM10	23	$12

And you then get to define:

• Do you want to lead or lag the market? It much depends on the difficulty to retain and attract that specific specialist. Marine and Seamen are needed in high numbers and not always easy to persuade to enlist, thus the salary has to be more attractive. Same as the Captain, where the aim is likely to be retention in the long period.
• Can you simplify the pay scale clustering some roles together? The smoother your pay scale the easier to manage and communicate. Lieutenant and Chaplain may be clustered on the same salary, and the same for Marine, Cooks and Seaman.

Your initial draft may be looking as follows:

Position	Survey Code	Points	Mkt Salary	Monthly pay
Captain	CP30	100	$70	$75
Surgeon	SR20	75	$55	$50
Lieutenant	LT20	50	$45	$40
Chaplain	CH30	55	$40	$40
Cook	CK10	28	$14	$14
Marine	MR10	25	$12	$14
Seaman	SM10	23	$12	$14

• Where do you have the highest efficiency or required investment? Always look for the economic impact that design decisions have on the internal reality. In the example the cost for enhancing Captain’s salary 7% above the market is ($5 x 6) = $30, or about 0.1% of the total budget. On the other hand the cost of enhancing Seaman pay is ($1 x 860) = $860 which is a meaningful portion of the total budget. You may then want to create an additional pay grade to balance attractiveness with efficiency:

Position	Survey Code	Points	Mkt Salary	Monthly pay
Captain	CP30	100	$70	$75
Surgeon	SR20	75	$55	$50
Lieutenant	LT20	50	$45	$40
Chaplain	CH30	55	$40	$40
Cook	CK10	28	$14	$14
Marine	MR10	25	$12	$14
Seaman	SM10	23	$12	$13

Organization context may also have an impact in fine-tuning your design:

• Life Cycle: start-ups or companies in a growing moment may afford to lead the market more easily than entities in a maturity or declining moment
• Segment: in the war for talent you depend also on your competitors decisions, are they targeting midpoint? Chances are they do, but it’s worth a check
• Company size: big multi-national companies have strong needs for governance and consistency, thus you can expect minimal or no flexibility to deviate from the standard. On the other end of the spectrum, a small company may be more willing to design and negotiate tailored packages

Various discussions about the macro points above will ultimately lead you to a draft pay structure. Ready to sail, we will soon navigate towards the next elements to be considered.

Batten down the hatches!