Creating a Market Competitive Salary Structure

Rate Ranges

Just as it is useful to group jobs on the horizontal axis, it is also useful to use a range of salary for each salary grade created. This range of pay allows an organization to hire less experienced employees at lower salaries and reward experienced employees with good performance at higher salaries.

The points to define in the range are the:

• minimum
• midpoint
• maximum

Ordinarily the midpoint of the range will be the market rate, representing the mean or median of the salary survey data for a fully performing and qualified applicant. A control point can also be used in lieu of the market rate representing the rate established by a company based on its compensation strategy. The range spread – the distance from minimum to maximum – varies greatly but is usually within a 30 to 80 percent range. Nonexempt ranges are typically 30%+ wide from minimum to maximum. Professional/management ranges are typically 50%+ wide. Executive ranges are typically 50-80%+ wide.

Occasionally, a company will use a salary structure with narrower ranges at the bottom of the structure and wider ranges as the structure progresses to higher levels, often referred to as an inverted pyramid.

Recommended SalaryStructure

Once salary grades and salary ranges are designed, the salary structure is complete. This is depicted below.

Review of how to create this graph

• The horizontal axis is the hierarchical ranking of the organization's jobs derived through internal assessments, mostly job evaluation. It is arrayed from low to high.
• The vertical axis is an array of pay rates, from low to high.
• When these two sets of data are plotted, it creates a scatter plot.
• A pay-policy line is drawn through the diagram, using either a hand-drawn line or a line of least-squares.
• Around this pay-policy line, salary grades are developed using the horizontal dimension.
• Salary ranges are developed using the vertical dimension.

Any job can now be assigned to the appropriate salary grade. The actual salary then lies within the range designated for that salary grade. The midpoint of the salary grade is considered to be the market rate for the jobs within that pay grade. Movement within the grade is determined by the organization's pay system policies.