Take Our HR Skills Assessment to Get a Custom Learning Plan
Continue reading to learn what a salary range is, factors that affect salary ranges, how to determine salary ranges for your positions, and tips on how to communicate about salary expectations with candidates.
What Is a Salary Range?
A salary range defines the minimum and maximum base salary for a specific job or group of jobs within your organization. The salary range for a specific position is based upon several factors and varies by organization and industry.
What Factors Affect Salary Ranges?
There are several factors that can affect your company’s salary ranges, including:
- Compensation philosophy. Your company’s compensation philosophy determines how you approach compensating your employees. This often depends on the industry and your company’s business goals, among other factors.
- Market rate. The market rate sets the bar for your company to work with in terms of salary ranges. Your midpoint will likely be the market rate and your company determines how far to extend the minimum and maximum salaries.
- Industry. Fast-paced, innovative industries often demand higher salary ranges to compete for the best talent available. Other industries vary in salary range due to the working environment, training requirements and other factors.
- Experience and skill level. Positions that require individuals with extensive experience in the field demand higher salary ranges while entry-level positions are more likely to be on the low end of the salary range.
How to Determine What Range Is Right for the Position
Although there are a variety of factors that affect salary ranges, you can take the following steps to determine the right salary range for any position in your organization.
1. Assess Your Company’s Compensation Philosophy
The first step in determining the salary range for a position is to consider your company’s compensation philosophy. Your company’s compensation philosophy is its approach to paying employees for their work, and directly affects salary ranges more than any other factor. For example, a lead-the-market compensation philosophy will result in higher salary ranges.
If your company doesn’t have a current philosophy, you’ll need to establish one before you are able to determine the right salary range for the position you’re hiring for.
2. Conduct a Job Analysis
A job analysis helps to identify the context or purpose of a job within the organization and its key duties and responsibilities. Equipped with enough information to group jobs by related factors, a job analysis creates the categories (or job families) for which you will set salary ranges.
3. Complete a Job Evaluation
Once you’ve grouped jobs with similar functions, requirements or other characteristics through a job analysis, job evaluations help you create hierarchies within each category. By determining the relative level, complexity, importance and value of each position, you can assign each to their respective spots on the salary range.
4. Analyze and Gather Information from External Salary Surveys
Once you determine the category and value of each job within your company, analyze external salary surveys to gain a better understanding of the market rate for the specific position. Using competitors’ salary data, the market rate helps you set the midpoint in your salary range.
5. Create Pay Grades
Pay grades may be determined depending on the required skill level, experience, tenure or other factors. For example, exempt and non-exempt positions may have different salary grades. You may also develop a separate salary grade for executives and other high-level employees.
6. Set the Salary Range for Each Pay Grade
Equipped with external market salary information, you can set the salary range for each position within their respective pay grade. Some companies may forgo pay grades and set unique salary ranges for every position.
Your compensation philosophy will play a major role in setting your salary range. The philosophy will likely determine how the midpoint of the range will be set and the width of the range between minimum and maximum salary.
7. Address Pay Variations
When you establish a new salary range, be sure to consider pay rate variations between old and new pay rates.
Green-circle rates are when employees’ salaries are below the minimum in their respective range. These employees should have their ranges adjusted when you implement a new system.
Red-circle rates are when employee’s salaries are above the maximum in their respective range. You should not reduce these employees’ salaries, but freeze the salary at its current rate.
Tips for Talking to the Candidate about Salary Range
Discussing salary and compensation can be uncomfortable, but it’s an important topic in the hiring process. Consider the following tips for communicating the salary range to candidates.
Conduct Your Research
Before communicating with prospective candidates, make sure you do your due diligence and conduct research on competitor salary ranges. Though you’ve conducted thorough research in setting the salary range, you need to be prepared to answer any questions and understand how you compare to potential competitors’ pay rates.
Discuss Salary Ranges Early On
You don’t want to wait until the offer stage before discussing salary expectations. During the initial screening interview, you should ask about the salary range the candidate is expecting.
This helps determine whether to move forward in the interview process, and learning the salary expectations of a higher number of interviewees in this stage can help you assess whether your range is within reason.
Highlight Non-Salary Incentives and Benefits
Outside of salary information, highlight that your total compensation package includes incentives and benefits. For instance, if you’re using a lag the market compensation philosophy, you might offer favorable paid-time-off policies to make up for the lack of a competitive salary.
It’s important to be 100% honest with your candidates about where they could land within the range when it comes to salary negotiations. This helps to establish a level of trust with prospective employees and create a positive company culture.
Questions You’ve Asked Us About Salary Ranges
Other Related Terms
Want to contribute to our HR Encyclopedia?
Posts You Might Like
When it comes to choosing a payroll provider, there is so much more than just running payroll. Unfortunately, many business owners rush to choose the provider without considering many alternatives. Learn more about the four reasons you should consider making a change.
Employee compensation can take many different forms. Most people think of it as the money that ends up in your bank account at the end of a pay period. But for many of us, the fringe benefits we enjoy from our employer play a significant role in our compensation package.