How to Establish Salary Ranges
How to Establish Salary Ranges

How to Establish Salary Ranges

In a tight labor market, it’s critical to get salary ranges correct. 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.

For more ideas on how to better manage labor costs or improve the employee experience, visit Paycor’s HR Center of Excellence.


payroll compliance guide

More to Discover

Webinar: The Turnover Crisis in Restaurants: An Action Plan for Owners and Operators

Webinar: The Turnover Crisis in Restaurants: An Action Plan for Owners and Operators

Restaurants across the country are experiencing high volumes of turnover at an alarming rate. In 2016, turnover exceeded 70% for the second consecutive year, and the turnover rate in the fast-food industry reached 150%, the highest since data was first captured in 1995*. With record numbers of restaurants and more jobs to choose from, employees are willing to take risks to find the right fit. Join our webinar to understand how to manage and prepare for turnover before it happens so that you can reduce the impact on your bottom line. Plus, we'll share how restaurants are using technology to solve their HR challenges. Speaker: Henry Link Henry is a Principal Marketing Program Manager at Paycor. Through his extensive research in the HR...

Webinar: BUILD Web Summit - Build a Competitive Compensation Plan

Webinar: BUILD Web Summit - Build a Competitive Compensation Plan

Learn how to build a compensation plan that keeps you in line with the market and maintains compliance. Speaker: Christine Ippolito Christine Ippolito, SPHR, SHRM-SCP is the Founder and Principal of Compass Workforce Solutions, LLC, a consulting firm providing strategic human resource expertise to small businesses to reduce exposure and increase profitability. She has served clients in a leadership capacity for 25 years in multiple industries and environments within Fortune 250, venture capital and equity-backed companies, as well as privately held and family-owned businesses.

Automated Payroll, Onboarding and Timekeeping Helped Royal Chemical

Automated Payroll, Onboarding and Timekeeping Helped Royal Chemical

Discover how Royal Chemical, a contract manufacturer, used Paycor solutions and customer service to eliminate manual onboarding, timekeeping and payroll. Paycor also provided real-time analytics and custom reporting, simplifying a once complex process for HR.

The Turnover Crisis in Manufacturing

The Turnover Crisis in Manufacturing

An action plan for all HR and finance leaders It’s no secret—manufacturing is losing talent. As Baby Boomers leave the workforce and take valuable skills with them, it’s expected that nearly 3.5 million manufacturing jobs will open up by 2025. Two million of those jobs are expected to go unfilled because of the skills gap*. The longer positions go unfilled, the more the production process is disrupted. Company morale starts to decline, and manufacturers see profits dip as they’re unable to operate at full capacity. Automation and robotics may help fill some of the labor gap, but HR still needs to find humans to problem solve, analyze issues and manage output. If you’re trying to recruit in the manufacturing industry, you’re in a vicious...