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What Is a Salary Range Spread?
A salary range spread denotes the minimum, midpoint, and maximum rate that an organization has identified as a competitive salary for a specific position or group of positions in a given geographic location. For example, you might state that your salary range is between $55,000 and $60,000. This means you would like to receive an annual salary between those numbers. This allows the organization and applicant to negotiate and determine an agreed upon salary.
Why Is Salary Range Spread Important?
A salary range is important for an organization because it allows the organization to adjust the pay rate to match the education and experience level for each specific applicant.
- Consistency. A salary range spread allows an organization to pay similar employees similar wages based on education, experience, and overall job performance. It also helps to eliminate internal conflict among peers, as everyone knows the organization adheres to the salary range and are compensating positions or groups of positions with relatively the same wage.
- Flexibility. When an organization offers a salary range, this allows the pay to be flexible. Flexibility enables an organization to offer more to an employee with more experience as a negotiating tool. Flexibility within the salary range assists lowering labor costs by potentially spending a higher salary to attract and retain a more qualified applicant who brings added value to the organization.
- Competitiveness. A defined salary range gives organizations the ability to compete with similar companies. As HR professionals, we network constantly to discuss policies and procedures. Discussing average salaries with a competitor provides insight for the organization to analyze and adjust its salary ranges if it is below the competitors.
Important Salary Range Spread Terms
Depending on your organization, salary range spread can include complex calculations or basic ideas. Below are simple terms that apply to all salary range spreads regardless of the organization.
Salary Range Maximum
Salary range maximum means the highest rate the organization is able to offer for the specific position. Sometimes this maximum range is 30 percent higher than the midpoint range.
Maximum = midpoint X 1.15
Salary Range Midpoint
A simple method to determine the salary range midpoint is to research the standard salary offered within other industries in the same field. Some organizations will refer to the midpoint as the 50th percentile.
Salary Range Minimum
Salary range minimum means the lowest rate the organization will offer for a position. Similar to the maximum rate, the minimum rate is typically 30 percent lower than the midpoint range.
Minimum = midpoint X 0.85
How to Establish a Salary Range Spread
Determining salary range spread is an important step in the compensation planning process. It is vital that HR partners closely with the CFO to build a competitive salary range that will drive retention and aid in recruitment.
Step 1: Conduct a Job Analysis
The first step is to understand the essential skills needed to fulfill the responsibilities of the position. When conducting a job analysis, you will learn what education and experience is needed as well as if the position will be a people leader position. Understanding the details allows HR to benchmark the position against similar roles in the market and job-specific industry.
Step 2: Rank Positions
After analyzing the positions and developing job descriptions from the job analysis, rank those positions based on necessity to the overall function of the organization. Positions range from CEO to part-time receptionist. The process of ranking assists in developing a salary range for the entire organization. The US Bureau of Labor Statistics, Overview of BLS Wage Data by Area and Occupation, provides a great reference table.
Step 3: Assess your Budget
Partner with your CFO to understand the constraints within the organization. Working alongside the CFO will allow you to grasp how much the organization can allocate to each salary range. At a minimum, you want to offer at least market rate for a position, but based on the organization, you might need to offer a salary range below market rate. During this step, HR can look at other options that can be offered beyond salary to attract and retain talent.
Tips for Using a Salary Range Spread to Attract Employees
During the interview process, the recruiter or hiring manager will use a wide salary spread range with the applicant. Discussing a salary range that is wider than the position allows the applicant and recruiter or hiring manager to understand what the applicant is looking for in regards to annual salary.
Tip 1: Brand Boost
Disclose the salary range spread on the job posting. This is not normal practice but it will show applicants you are open. This is the first step to build trust in a potential employee and encourages communication around salary to be easier.
Tip 2: Benefits
The recruiter or hiring manager should be well versed in the total compensation of the organization, including paid time off, 401k, health insurance and so on. This is a great alternative to offer an applicant if you cannot meet a higher salary request. Listen to what is important to the applicant. That might mean offering additional weeks of time off, allowing hybrid work or a flexible schedule.
Tip 3: Skills, Expertise and Experience
Review the applicant’s skills, expertise and experience against the job description. Have talking points ready to discuss if the applicant is overqualified or underqualified for the position.
If the applicant is underqualified, the recruiter or hiring manager can select the standard entry salary for the position in the salary range and then describe how the company can help the applicant reach their goal salary in a set period of time.
If the applicant is overqualified, the hiring manager at the recommendation from HR would want to offer the applicant a salary at the top of the salary range. The hiring manager should explicitly explain the short-term plan to move the overqualified applicant into the next role. This commonly occurs when there is a known vacancy in a key role, such as retirement or job elimination, and the organization is looking to bring on a new candidate prior to the exit.
Questions You’ve Asked Us About Salary Range Spread
This is where your individual salary falls within the salary range. To assist in understanding range penetration, utilize the following formula: (salary minus range minimum) / (range maximum minus range minimum) = range penetration.
Example: Quinn’s annual salary is $41,000. The salary range is $37,000 – $52,000
Range penetration = (41,000 – 37,000) / (52,000 – 37,000)
Range penetration = 4,000/15000
Range penetration = .27 or 27%
Quinn’s salary is 27% of her salary range.
Always. The candidate should research the position they are applying for and understand what that salary range is. The candidate can use their research, experience and education as leverage. When negotiating salary, speak directly with the hiring manager as the salary impacts the department budget.
Nicole Little is a Senior HR Business Partner with over 7 years of experience in the Human Resource field. Nicole has worked for the largest e-commerce company and the leading LTL carrier. Nicole Little’s love for human resources comes through as she advocates and builds relationships within all levels of an organization. When Nicole is not working, she is enjoying the outdoors with her husband, two son’s and their dog.