How to Establish Salary Ranges
How to Establish Salary Ranges

How to Establish Salary Ranges

Salary ranges play a big part in compensation planning, and taking your time to get these right will really pay off long-term. The labor market has been volatile recently (to put it mildly) but after record unemployment, a rush to expand could be right ahead. You don’t want to miss out on hiring a great employee because you aren’t paying enough for the job position. When you start to establish salary ranges, it’s important that HR leaders and CFOs work together with the realization that the pay scale is a key driver of recruiting and retention.

How to Determine Pay

Defined pay ranges not only ensure you’re paying employees fairly but can also be used during budget planning and to control labor costs. Check out these 8 steps to developing salary ranges:

  1. Do You Want to Lead, Lag or Match?
  2. When you’re a market leader, top talent will view your company as a popular one. If you decide you just want to match the market, you’ll simply pay the same as your competitors. If you’re lagging, it’s probably not intentional—at least it shouldn’t be. Oftentimes you discover you’re behind the curve when you take time to review your current pay scale and compare it to the market.

  3. Review Job Descriptions
  4. This can be a tedious process but it’s important for HR leaders to work with managers and employees to find out what they really do on a day-to-day basis. Conducting an online survey is an efficient way to ask your workforce to define all aspects of their jobs. Then you can build official job descriptions based on the feedback.

  5. Rank the Job Positions
  6. Once you have the updated job descriptions, evaluate each one and organize them by relative worth and responsibility. Some of the more common ways to classify are:

    • Ranking — The ranking method categorizes job roles based on the overall value and complexity within your organization.
    • Points — The points method is more complex and uses a predetermined scale (e.g. 1-10) for the importance of key job elements. Jobs are scored based on the total number of points and pay ranges are assigned accordingly.
    • Classification — This system categorizes comparable job content and value (such as executive, managerial, skilled and semi-skilled labor). This method works well for larger organizations and puts jobs of the same class into similar compensation packages.

  7. Conduct Market Research
  8. Use a compa-ratio to determine which employees are being paid below or above average for their pay range. The U.S. Bureau of Labor Statistics is a great place to start your research, but don’t ignore popular salary information websites/apps like Glassdoor and Indeed. Rest assured, anyone applying to your company is checking the salary intel that others post online. Make sure that you’re comparing apples to apples when you’re in this phase. The tasks, functions and level of responsibility should closely match.

    impact of salary on employee retention

  9. Create Pay Grades
  10. Use either your job evaluation data or market data to group job positions by similar salary survey data. Note the salary highs and lows in order to determine how you want to position yourself in the market. Each group of job positions with similar market salaries makes up a pay grade. A small business may only have three or four pay grades while a large company could have dozens.

  11. Create Salary Ranges within Pay Grades
  12. For each pay grade you’ll have to create a minimum, midpoint and maximum pay range. There are no hard and fast rules for these. A traditional salary range is 30%. If you use the midpoint salary as your base (ex. $50,000), multiply it by 1.15 to get the maximum range ($57,500) and .85 for the minimum ($42,500).

  13. Make Adjustments for Existing Employees
  14. When you compare the salaries of your current employees to the salary ranges you just established, it’s inevitable that you’ll discover some are paid more or less than the new ranges dictate. If your employees are below the new salary threshold, you have the option to increase their pay.

    If you’re paying an employee a salary that’s above his/her pay grade, you have a few options. One is to forgo the next scheduled raise and instead give him/her a bonus. That way you’re not raising the base salary even higher. Or you could consider promoting the employee to the next pay grade. Of course, you could lower his/her base pay or make them ineligible for future increases, but that would have a negative impact on morale and engagement.

  15. Monitor and Update
  16. Salaries always fluctuate, so it’s important to ensure you continue to monitor the market. This doesn’t mean you have to conduct salary surveys every year, but if there are significant economic changes, it likely will be worth an evaluation.

Additional Benefits and Perks

While sticking to your established salary range is important to stay on budget, you may want to consider adding additional perks in order to attract the right candidate. Offering benefits such as tuition reimbursement, mentoring, professional development courses, childcare, wellness credits and flexible schedules can be more attractive than a higher salary to some people. This is even more important when you have a remote-first workforce.

About Paycor

More than 30,000 medium-sized and small businesses trust Paycor to help them manage their most valuable asset – their people. Paycor is known for delivering modern, intuitive recruiting, HR and payroll software, but what distinguishes us is our singular focus on helping business leaders, entrepreneurs and HR professionals make a real difference in their organizations. Take a product tour today to learn how we can help you make an impact in your organization.

Tour Products

More to Discover

Webinar: Paycor's Virtual Payroll Platform Overview

Webinar: Paycor's Virtual Payroll Platform Overview

Focus on what you do best. We’ll take care of the rest, behind the scenes.Over the years, Paycor has conducted hundreds of user groups, one-on-one interviews, and group discussions with HR leaders. One thing we discovered is that HR teams spend nearly 70% of their time on inefficient administrative tasks, some of which are still paper-based. To make a difference in your organization, your team needs to simplify and streamline HR, benefits administration and compliance so you can focus on what you do best.Watch as one of our solution experts walks through how Paycor’s Payroll solution can help you solve some of your biggest HR challenges.Speaker: John RedingJohn is the Senior Director of Deal Success and Pre-Sale Support for Paycor. A...

Payroll Card vs Direct Deposit

Payroll Card vs Direct Deposit

Choosing the Right Payment Method for Your Employees It doesn’t take much business experience to know that getting your compensation strategy right is crucial for recruiting and retaining top talent. But paying employees isn’t only about a question of how much. You also need to know how to pay them. What makes things more complicated is this: almost a quarter of American households are unbanked or underbanked. Either they don’t have a bank account or, if they do, still rely on non-traditional financial services like pay day loans or check-cashing services. This could be down to something as simple as lack of traditional banks close to home, looking to avoid high fees or just not having enough funds to meet minimum balance requirements....

How HR Software Can Boost Your Compensation Strategy

How HR Software Can Boost Your Compensation Strategy

You can put in all the work you want developing a great company culture, but if you don’t get compensation strategy right, you’ll be fighting a losing battle to motivate and retain your employees, and you’ll miss out on attracting top talent.It’s never been more important: with the rise of remote work, intangible benefits like in-office culture or work location offer less of a pull factor. Meanwhile, the stats show employees are working harder than ever and it’s only natural they’ll expect to be rewarded. The tools you still have at your disposal, like merit increases and bonuses, have a big role to play keeping your workforce productive and engaged.Sixty-nine percent of organizations say that compensation trends are important or very...

A Small Business Guide to Giving a Raise

A Small Business Guide to Giving a Raise

An employee asks for a raise—now what? In 2020, economic uncertainty prompted many companies to freeze salaries. As businesses bounces back, don’t be surprised if employees come knocking. It might be a headache for managers, but it doesn’t have to be. If your decision is guided by a broader compensation strategy, you can proceed with confidence. What to Do When an Employee Asks for a Raise When an employee plucks up the courage to ask for a raise, a manager’s immediately reaction is all important. It’s natural to feel a little irritated or even offended—that’s okay, what matters is that you don’t show it. The employee needs to know that you’re on their side.Instead of making promises or explaining why it isn’t possible, ask the employee...