Tips to Establish Employee Salary Ranges

As an employer, it’s critical that you establish a salary pay scale that defines how you pay employees of various categories and seniority levels. Moreover, it’s also vital that you can explain the reasoning behind your pay structure in case any job candidate, employee or authority wants to know. The following steps can help you create a salary scale:

• Define your compensation policy: Prior to creating a salary scale, it’s important to define your organization’s approach to compensation. Do you want to be a leader, which will likely help you attract top talent away from your competitors? You can also opt to match the market, which means you’ll pay roughly the same as the competition, or you can lag behind and pay less. In general, lagging only occurs when an employer has a limited budget or when other factors exist — such as a desirable employer brand or highly sought-after perks — that mitigate the impact of lower wages.
• Analyze your jobs: Review all the positions in your organization and document what responsibilities and tasks they include. Make note of the qualifications required for each position, as well as the conditions employees work in. You should also assess the importance of each role in relation to other roles in the company. When you’ve completed this step, you should have detailed job descriptions for all of the positions in your company.
• Group similar jobs together: Jobs can be grouped together based on discipline — such as administration, HR or IT. You can also group them based on rank, for example, management and executive — plus, you can sort them according to location if you have operations in multiple countries or regions.
• Assign rankings: Rank each job according to responsibility level and relative worth to the company. You can use a point system and assign points to characteristics of each role, such as education, skill, independent judgment and working conditions. You can also use a hierarchy system that ranks jobs according to their value to the organization.
• Research the market: Find out what the average pay is for each role by conducting market research. The U.S. Bureau of Labor Statistics provides some general data about salary ranges. You can also go to Glassdoor.com or Indeed to get more current insights into competitive salary ranges.
• Establish pay grades: Create pay grades based on your job analyses, your market research and whether you want to lead, match or lag behind the market.
• Establish salary ranges: Determine a maximum, midpoint and minimum pay for each pay grade. In general, a salary range is between 30 and 40 percent, although this may be narrower for lower salary grades and higher for executive ones.
• Review and update your salary scale: Over time, salaries change according to the cost of living and market demand for specific roles. That’s why it’s advisable to review — and if necessary update — your salary scale once a year.

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