How Organization Hierarchy Type Affects Pay Distribution

How Organization Hierarchy Type Affects Pay Distribution

Organizations come in different shapes and sizes, and the hierarchy type is one of the factors that can influence the distribution of pay among employees. In this article, we will explore the impact of organizational hierarchy type on pay distribution.

Different kinds of hierarchy

Hierarchical organizations have a transparent chain of command, with each level of the hierarchy having distinct responsibilities and levels of authority. In this type of organization, pay tends to be distributed based on job titles and seniority. Employees at the top of the hierarchy, such as executives and managers, typically earn higher salaries than those at the bottom, such as entry-level workers and support staff. Some examples of hierarchical organizations are the military, government agencies, and large corporations.

In contrast, flat organizations have fewer levels of hierarchy and emphasize collaboration and teamwork. In this type of organization, pay is often distributed based on performance and contribution to the organization. Employees who contribute the most to the organisation, regardless of their job title or seniority, may receive higher pay. Some examples of flat organizations are startups, small businesses, and non-profit organizations.

Matrix organizations combine elements of both hierarchical and flat organizations. In this type of organization, employees may report to multiple managers, and their pay may be influenced by both their job title and their contributions to specific projects or teams. This can lead to more complex pay structures, with employees receiving different pay rates depending on their roles and responsibilities. Some examples of matrix organizations are consulting firms, advertising agencies, and engineering firms.

In conclusion, organization hierarchy type can have a significant impact on pay distribution within an organization.

Pay differences across levels

The type of organization’s hierarchy can also influence the way pay is structured within each level of the hierarchy. For example, in a hierarchical organization, the pay difference between managers and their subordinates may be significant, while in a flat organization, the pay difference may be more modest.

On the one hand, an example of a hierarchical organization is Aldi. Let’s look at the salaries of different positions in the US:

  • Salary for Shift Manager in Aldi in the US: 30-35k EUR
  • Salary for Training Manager in Aldi in the US: 40-50k EUR
  • Salary for Area Manager in Aldi in the US: 60-65k EUR
  • Salary for Operations Manager in Aldi in the US: 80k EUR
  • Salary for Operations Director in Aldi in the US: 200k EUR

We can easily see big leaps in salaries among different hierarchy levels.

On the other hand, an example of a flat company is Buffer. Buffer shares their salaries on their websites. Here we can see, for example, that senior engineers and engineering managers are being paid the same amount in multiple locations. This is a clear symptom of a flat organisation with modest differences in pay for different levels.

buffer salaries
Extract of Buffer salaries.

Other factors influencing pay distribution

Another factor that can influence pay distribution is the size of the organization. Larger organizations tend to have more levels of hierarchy and may have more complex pay structures, while smaller organizations may have simpler structures with fewer levels of hierarchy.

Other factors can also influence pay distribution, such as industry norms, market demand for certain skills, and geographic location. Organizations need to take all of these factors into account when designing their pay structures to ensure that they are fair and competitive.

Try the TalentUp Salary Platform today to ensure that your organization’s pay structure is fair and competitive. Our platform provides salary market data by position and geographic location, allowing you to design a pay structure that attracts and retains top talent.

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About Author

Èlia Adroher i Llorens

Content Writer. Èlia studied International Business Economics with a focus on digital marketing. She is also interested in learning about data analysis.