Building Salary Ranges for Beginners, Part 1

“What’s the typical salary range for an administrative assistant?” Talk about a loaded question! Here at PayScale, we work with a lot of companies who are trying to determine typical salary ranges for their jobs. What are the signs that your organization needs a salary range overhaul?

“Typical” is a tricky word because it implies a standard salary range can be applied to a single job across many companies. The truth is there is no one-size-fits-all range that will make sense for every business and in every market. Rather, there is a standard approach used by many companies to build out salary ranges that are competitive in today’s market.

When to Consider Creating Salary Ranges

Not all companies want or feel ready for formal salary ranges. As an HR Professional, it is your job to identify when a compensation plan is needed and, more importantly, to educate your leadership team that creating pay ranges is good for the business.

3 Signs it’s Time for a Formal Compensation Strategy

How do you know when it’s time? I often advise my PayScale clients that the sooner they establish a compensation plan, as well as policies around how the plan will be administered, the better off the company will be in the long run. That said, it can be difficult to obtain leadership approval on developing ranges without any impetus for change. Therefore, keep an eye out for the following situations to occur, as they usually signal it’s time to start formalizing pay practices at your company.

  1. A top performer comes to you with a “ransom” offer from a competitor.
  2. A manager advocates paying a new hire $10,000 above the market rate for a job because no candidate will accept the amount they’re offering.
  3. Several employees complain to HR about how they’re paid relative to another group/department.

Each situation is a red flag to HR that a formal compensation plan is needed. Establishing pay ranges helps ensure external competitiveness as well as internal equity. And, when implemented well, a compensation plan can help improve recruitment, retention, and employee satisfaction. How? Let’s walk through the typical approach to building salary ranges.

Choosing the Right Salary Market Data to Fit Your Compensation Philosophy

Now that you’ve determined you need to build salary ranges, the first step is to anchor your ranges to salary market data. Data is the core of any legitimate compensation plan – it ensures that employees are paid fairly, makes conversations about employee pay easy and comfortable, and of course, protects your company from legal action.

Remember: The data you choose should reflect your compensation philosophy (how competitive you want to pay employees) and your compensation strategy (where you compete for talent). 

Once you’ve established which market you compete in for your talent (industry, company size, and location) and at what point in the market you wish to position the company (meet, lead, or lag), then it’s time to select a data source.

Market Data Sources

Selecting a source (or sources) for your market data is an important, but often confusing, process. There are three primary sources for market data and each have their own set of benefits and drawbacks. When making your selection(s), consider what type of company you are as well as your available budget for conducting a market study.

Published, Traditional Surveys: Provided by the government, professional associations, and/or consulting firms

Pros: Depending on the type of company you are, data from Professional Associations that service your industry might be helpful, particularly if you hire specialized talent from a niche industry. Consulting firms gather salary information from Fortune 500 companies in large metro areas, so if your company is positioned similarly, you may consider using this type of data. Government data from the Bureau of Labor Statistics(BLS) provides a broad perspective on market conditions.

Cons: It can take up to a year (or more) to receive results from these sources, which means the data will be outdated by the time it reaches you. Often the firm conducting the study will ask you to provide your data in order to receive a discount on the survey results, which may save you money but could cost you a considerable amount of time as you will need to gather and submit your information first. Results are often delivered in a published binder, CD/ROM, or excel file, which can make it challenging to analyze the data. Consulting firms typically survey large, well-established companies so the data tends to skew high and may not be applicable to your company. And Professional Association surveys typically have a small sample size of participating businesses.

Internet Surveys: Online resources that offer data at the click of a button

Pros: These sources are very timely, can be easy to use, and are often a good value compared to traditional sources. A leading source for salary information is PayScale, which gives you access to real-time data and surveys millions of respondents so the information itself is a highly accurate representation of the market.

Cons: Depending on the online vendor, determining where they source their data can be difficult. Some online vendors simply buy traditional salary data and then average that information together to generate report. As a result, it is difficult for both vendor and user to discern exactly where the data came from. PayScale follows the World at Work best practice by going directly to the source (employees) to gather salary information. The company prides itself on report transparency, so you always know where your data is coming from.

Custom Surveys: Some firms offer to conduct custom market surveys for your business

Pros: With this option, the firm will survey competitors of your choice for their salary data and provide the aggregated results to you. These types of surveys are often very accurate.

Cons: Custom surveys are usually the most expensive market data option. It can also be a lengthy process for the firm to collect and report back on the data they receive. And, depending on the companies you wish to survey, you may struggle with participation.

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