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Pay Ranges
Pay ranges with grades are the most common salary structure in use today. They may also be called salary ranges or open ranges. They allow a company to pay for performance and to avoid the limitations and issues with step ranges. A step range would not be effective for an exempt workforce.
Salary structures will typically include salary grades and pay ranges to deliver market-competitive pay for jobs within a company.
| Pay Range | A pay range represents the minimum, midpoint, and maximum rates that a business is willing to pay employees performing a job. Typically, the midpoint or control point is set to provide market competitive, fair, and equitable salaries based on the competitive marketplace for a business. |
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A pay range consists of:
- minimum (the lowest rate for a job or group of jobs; also, may be the entry hire rate)
- midpoint (the competitive market rate or control point)
- AND
- maximum (the highest rate the organization is willing to pay for the job)
When a company needs to set the midpoint of a range at a different rate than the market, this is called a control point.
Rationale for Pay Ranges
A company may prefer to use salary ranges to set employee compensation. This approach allows a company to recognize the knowledge, skills, and abilities of each job and differentiate employee pay based upon performance. This is the most common approach used by organizations today.
Salary ranges are useful for managing:
- recruitment
- recognition
- retention
- performance
- employee expectations and engagement
- pay equity
- job worth
- cost control
The ability to hire, motivate, recognize, and retain employees are important reasons to use salary ranges. Recognizing experience and performance through competitive compensation compared to the external labor market encourages a highly-skilled workforce to remain with a company. Differentiating pay based upon performance allows this to take place. It also makes it more difficult for a competitor to hire employees away. Keep in mind though, performance assessment is always influenced by a manager’s opinion and assessment of performance.
Pay ranges are also an important tool for controlling a company's costs. Salary ranges establish market-competitive limits on how much pay is appropriate. When a company manages its desired competitive position to the market based on market index (an employee's salary divided by the average market rate for the position), the salary range midpoints are essential for this analysis.
Salary ranges also help to manage employee expectations and engagement. Employees are rarely content to make the same salary and only receive increases when there's a change in a step salary salary structure.
For example:
Jane recognizes that her knowledge, experience, and performance on the job are
important attributes, and she wants to be rewarded for her contributions on the job.
A salary range with a minimum, midpoint, and maximum provides greater opportunities to recognize
performance, skills, effort, responsibilities, and working conditions.
Employees also change jobs more often today than in previous generations. As a result, they are much more knowledgeable about the market value of jobs, and they have easy access to market data for comparison. Online survey data collected from and made available to the public is referred to as crowdsourcing. It is not always reliable and can be inflated since it is self-reported. So be cautious, and keep in mind these crowdsourced data providers may also receive revenue from the sale of advertising. They typically have a broad customer base where the integrity of the data may not be the highest priority.
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Salary ranges are not useful for: