Compensation Foundations:

Pay Ranges

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Introduction Mykkah Herner, MA, CCPDirector, Professional Services

Sonnet Lauberth, MA, CCPCompensation Professional

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40 Million Salary Profiles250 Compensable Factors

10 Org types 350 Industries 14,000 Positions

The World’s Largest Salary Database

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Comp Structure for compensation planning

and strategy

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Agenda1. Basics2. Art3. Science4.Q&A

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The Basics

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What is a pay range?• A lower and upper unit associated with a pay grade• Generally have a minimum, midpoint, and maximum

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What is a pay grade?

• An identifier of a pay range• Multiple jobs can be grouped in a pay grade

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What’s the difference between Grades & Ranges?

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Grades: • Identify a

pay range

• Multiple jobs can be grouped in a pay grade

Range: • a lower and upper

limit associated with a pay grade

• generally has a minimum, midpoint, and maximum

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maximum

midpoint

minimum

Minimum: Lower limit of pay range

Mid-point:Proficiency point, aligned to market

Maximum:Upper limit of pay range

The 3 “M”s

“Our organization hires people, not points on a line”

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MinimumEntry level, still learning, ramping up

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MidpointFull proficiency

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MaximumExpert, Experienced

“What’s all this talk about percentiles? I got

into HR because I like working with people,

not numbers!”

Percentiles show placement within a group

You’ve probably seen them before

Class Rank

Class Rank: Top 10%

Class Rank: Top 20%

Class Rank: Top 50%

Mykkah

Child growth charts

Baby Chris is in the 50th percentile for height

That means that out of all the babies, 50% (half) of the babies are taller, and 50% (half) of the babies are shorter than Chris.

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Compensation: Both Art & Science

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The Art

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Why should my organization care about a pay structure?

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Benefits ofPay Structure• Alignment• Fairness• Communication• Confidence

Alignment• Validates compensation

strategy and aligns to business goals

Fairness• Clarifies the market and internal

value for each job, and provides a way to manage employee pay effectively

• Ensures pay equity (legally defensible)

• Provides room to reward your employees based on performance, experience, etc.

Communication • Provides a tool to talk to

employees about development

Confidence• Quantifies compensation

costs & enables budget decisions

• Determines pay for non-benchmark jobs

• Gives HR, managers, and employees confidence that pay decisions are fact-based

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Job Basedvs.

Grade Based

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Job-Based Ranges

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Job-Based Ranges• Focus is solely on external

equity• No ranges for non-benchmark

jobs• May go down from year to

year depending on the market• May be appropriate for smaller

organizations• Cumbersome for orgs with

many jobs

Ranges are built around the market value for the job, at the targeted percentile

Grade-Based Ranges

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Grade-Based Ranges

• Each grade has a range• External equity + internal

alignment• Can easily level positions• Can “slot” non-benchmark jobs• Easy to:

• Maintain + administer• Adjust to local markets• Keep current to market year-to-

year

Jobs with similar level of responsibility and value to the organization are grouped together in a grade

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Broad Bands vs Ranges

Now:

Level III

Level II

Level I

Then:

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The Science

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Building a Pay Structure

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Job-Based Ranges

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Grade-Based Ranges

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• There are no fixed rules for every organization

• Decide how many grades you will have. Number of pay grades varies in response to:

• The size of the organization

• The vertical distance between the highest and lowest level job

• How finely the organization defines jobs and differentiates between them (i.e. levels)

• The pay increase and promotion policy of the organization.

• Determine the definition of each grade

Step 1: Determine Pay Grades

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Step 2: Develop Ranges

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ConsiderationsDifference at the base vs top of the structure

• Broad range spread at the top, narrower at the base

• Time to proficiency

• Differentiation of skill sets

• Manager input

Overlap between ranges

• Long tenure/high performing employees can earn higher wages

• Provides more cost effective career progression within the org

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• Align positions to structure by matching market value with closest range midpoint

Step 3: Assign Grades to Positions

Assigning Grades• Adjust for internal alignment

• Positions with similar level of responsibility and value to the organization.

• Where market is between two grades, use internal equity to tip.

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Step 4: Position Grade Assignments

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Grade Assignments

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Using Pay Ranges

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How do you use the pay range?

• Employee Placement in Range•Guidelines or Policies

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Employee Placement in Rangeo Min = for employees who are new to the position, via hiring or promotion. May have

zero to limited experience and will be on a learning curve.

o Midpoint = for competent employees who bring desired experience, knowledge, and skill set, and who consistently meet performance expectations.

o Above midpoint = Typically used for consistently high achieving employees who possess great experience and skill set for their position.

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Guidelines or Policieso Develop guidelines or policies about:

o Where new employees enter ranges

o How current employees move within ranges

o What happens when an employee is promoted?

o How much discretion do managers have?

o Get specific, where it makes sense

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Maintaining a Compensation Structure

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Maintaining a Comp StructureNew positions

• Benchmark and assign grades based on market value

Evaluate ranges to market

• Annually based on market research

• Shift ranges as necessary (2-3 yrs)

Evaluate Grade Assignments

• Revised job duties

• Hot Jobs

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Q & A(we’ll email this out)