Salary Structures and Pay Delivery

Building a Salary Structure

Range Spreads

The width of the pay range is the distance from the top to the bottom of the range. It is also referred to as range spread and is the vertical dimension of the range. The width is usually stated in percentages. The width of the range may vary with the criteria for movement within the range such as expected time in position.

Performance factor. Assuming that performance is the criterion, the range spread represents the opportunity for performance differences in the job. Where ranges are narrow, the assumption is that performance differences are narrow (and vice versa).

In practice:

• administrative/operative jobs typically have range spreads of 30%+
• professional/management jobs typically have range spreads of 50%+
• executive jobs typically have range spreads of 50-80%+

Midpoint Progression

Midpoint progression, or "Midpoint Differential", refers to the percentage difference between grade midpoints. Midpoint progression will determine the overlap of grades. The larger the midpoint progression, the fewer the number of grades within a structure; conversely, the smaller the midpoint progression, the greater the number of pay grades within the pay structure.

Range Overlap

Except for the minimum of the lowest pay grade and the maximum of the highest pay grade, minimums and maximums usually fall within adjoining ranges. This is referred to as range overlap. The width of the pay grade and the midpoint differentials determine the amount of overlap between adjoining grades.

Range overlap is minimal when midpoint differentials are large and range widths are small. Range overlap is significant when midpoint differentials are small and range spread is wide.

Overlap allows employees at a lower salary grade to have salary range opportunity at the next higher salary range to recognize experience, longevity, and performance.

Why is this important? It allows companies to recognize and reward long-term, high performers while maintaining their current salary grade and range.

Possible problems. Some overlap is desirable, but there can be problems. The main problem surfaces in promotions.

An employee who is paid high in a salary range and is promoted may already be paid higher than the job rate (hire-in rate) of the new grade and range. But a promotional increase is standard protocol (and expected) for the increased responsibilities of the new position.

Organizations generally set a policy that a promotion is accompanied by a specified minimum percentage increase.

Other factors. Factors other than performance differences also affect range width.

Organizations that intentionally promote employees rapidly, may have narrow ranges, since employees don't stay within a single grade for long. A wide range is encouraged if pay increases need to be large to be noticed by employees. Higher grade levels tend to have broader ranges for this reason. Broad ranges can accommodate a wide variety of jobs and variable starting rates among jobs, and they indicate that the process of determining the market rate is not precise. Broad ranges may also support the management style of a high-entrepreneurial organization.

Managing to salary range maximums is particularly difficult. But there’s a logical maximum value for any job, regardless of how well it’s performed.

Beyond maximum. Some organizations provide lump-sum increases once an employee reaches the maximum of the range. The rationale is that:

• seniority should be rewarded
• AND
• attrition should be avoided

Long-term, competent employees who will not be promoted are sometimes granted awards beyond the maximum of the range. These awards are distributed in the form of a lump sum bonus so that it must be re-earned and does not become an entitlement. Also, a lump-sum payment does not increase benefits costs.