Outwardly, your company probably has a standard line when it comes to describing employee salaries—something along the lines of “salary commensurate with performance and experience,” perhaps. Internally, it’s essential to have a close eye on what you’re paying particular employees, whether this aligns with industry standards, and what a particular position is worth to your company. Establishing pay ranges or set salary boundaries is essential to getting a handle on this information and managing salary moving forward. Let’s look at how you can approach the task for your company.
Determine the value of each position within your organization.
It would be nice to think that you can’t put a dollar number on an employee’s worth, but…the accountants beg to differ. This isn’t personal to whomever holds the job. Each position within your company has, realistically, a minimum and maximum value. Figuring out that value depends first on determining what the market value is for a given position. Your jobs may not match other companies’ jobs 1:1, but matching approximate job duties and levels of seniority can give you a pretty good idea of what others are paying for similar work. Sites like PayScale offer glimpses into position salaries, but the U.S. Department of Labor Statistics can really be your gold standard of salary data.
Re-evaluate current employees.
This is likely the most painful part of the process because it could uncover some uncomfortable realities. Are your current employees making salaries in line with their market value? If they’re making less, this is a relatively easy fix—you can increase base salary until it’s aligned. If they’re making more, it’s tougher. Cutting someone’s pay is going to negatively affect morale and employee engagement. What you can do is determine that a particular employee won’t be eligible for base pay increases, but rather bonuses or other compensation.
Review and rank all the jobs in your organization.
By figuring out the most essential jobs in your organization and assigning value based on seniority, job complexity, education required, training necessary, and other aspects, you can start establishing a hierarchy of salary ranges.
Review your job descriptions.
Once you start considering the relative value of each position, it’s important to make sure that your recruitment materials are realistic. Are your job descriptions reflective of the actual job? If you’re going to assign a specific value range to a position based on the job tasks, experience and skills necessary, etc., then you’ll be able to manage the salary process better, and earlier in the process.
Determine the specific ranges.
Once you’ve gone through the work of assigning relative value to each position in your company, it’s time to start attaching real numbers to each position. A salary range should have a minimum, a midpoint, and a maximum. Most salary ranges are 30-40% apart, from minimum to maximum.
Communicate your salary philosophy.
Then, after you’ve established ranges throughout your company, it’s important to be clear about what the salary expectations are for each role. This doesn’t mean publishing the specific dollar ranges (given the confidentiality of individual employees’ salary information), but employees should know if you’re planning to compensate them with bonuses instead of base pay increases, or how you determine base bay raises. If employees are totally in the dark about how salaries are determined and why, it leaves the door open for negativity and speculation. It can also help you in disputes over employee pay, if the salary philosophy and methodology is at least somewhat transparent.
Don’t get complacent.
Keep monitoring your ranges, perhaps auditing them annually, to make sure that your salary ranges are keeping pace with the market standards.
Setting salary ranges makes your organization run more efficiently when it comes to hiring, developing existing talent, and adhering to financial best practices. It’s also a way to make sure you have a strong handle on what’s going on at every level your organization, and to inform how you can continue to meet organizational goals while supporting employees in a data-driven way.