A key aspect of any healthy compensation plan is transparency. Due to the potentially charged nature of pay, very few organizations share the individual rates of pay for each employee, but there are certainly other ways to help your employees understand how and why their paychecks are what they are even if you aren’t quite ready to email your payroll out to the whole office.
One way to do this is to help your employees understand how you are creating a salary structure and where they fall within this structure. Clearly each structure will vary from organization to organization, but here are a few of the basic questions that you may want to address in order to increase transparency.
1. What is the difference between a salary grade and a salary range?
A salary grade is a larger grouping of numerous positions that are determined to have similar value to the organization based on some combination of internal and external analysis and involve somewhat similar skills or responsibilities. Multiple salary ranges are then set within each of the salary grades.
2. How are salary ranges set?
The minimum and maximums for each salary range are based upon a certain spread centered around the midpoint or median. This midpoint is typically the “market rate” that has been calculated based on compensation research.
3. Why are some salary ranges bigger than others?
Depending on the type of position, the spread set on either side of the midpoint can vary significantly. Typically, higher level managerial type positions will have larger ranges than a lower level entry level type position. For example, ERC’s Salary Survey provides example salary ranges for each position reported and uses a 35% spread for positions classified as “office/clerical”, while “managerial/supervisory” positions have a 50% spread.
4. What happens if someone’s pay falls outside of the salary range?
Particularly if you are setting up a new salary structure or are adjusting your structure, it is not uncommon for a few employees to fall outside of the minimum or maximum of their designated salary range. Typically, those who fall above the maximum (called “red circled”) will have pay frozen or receive payment in an alternative format, such as a bonus.
On the opposite end of the spectrum, “green circled” employees who are paid below the minimum of their range are usually granted higher pay increases to get them into range.
Another option is to take a look at the job duties of the employees who are outside of the range and determine whether or not they may be mis-categorized within that range. Perhaps they are really performing tasks that would better align with a different grouping or level of positions and need to be adjusted accordingly.
Although some of the concepts outlined above may seem basic or obvious to someone in HR, remember, the vast majority of your organization’s employees aren’t dealing with compensation on a daily basis. Helping them understand the compensation structure in place, even at this basic level, can be a powerful tool in creating a better informed more satisfied employees and ultimately a more engaged workforce.
Compensation & Benefits Consulting
ERC offers a variety of compensation and benefits consulting services including competitive market pay analysis, salary structure design, total rewards strategy, variable pay design, and more!