How to Build Pay Grades and Salary Ranges

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Jessie Gordon
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1 Hw t Build Pay Grades and Salary Ranges Mykkah Herner, MA, CCP Cmpensatin Cnsultant, PayScale, Inc. Laura Richardsn Client Executive, PayScale, Inc.

2 13,000 Psitins 2500 Custmers 35 Millin Salary Prfiles 250 Cmpensable Factrs Creatr f the largest database f individual cmpensatin prfiles in the wrld, PayScale, Inc. prvides an immediate and precise snapsht f current market salaries t emplyees and emplyers thrugh its nline tls and sftware. PayScale s prducts are pwered by innvative search and query algrithms that dynamically acquire, analyze and aggregate cmpensatin infrmatin fr millins f individuals in real time. Publisher f the quarterly PayScale Index TM, PayScale's subscriptin sftware prducts fr emplyers include PayScale MarketRate TM and PayScale Insight TM. Amng PayScale's 2,500 crprate custmers are rganizatins small and large acrss industries including Mzilla, Tully s Cffee, Clemsn University and the United States Pstal Service.

3 AGENDA Why pay structure. Requirements fr building structure. Building Structure. Step 1: Identify multiple schedules. Step 2: Determine pay grades. Step 3: Develp ranges. Step 4: Assign grades t psitins & adjust fr internal equity. Using pay ranges. Cmpa-Rati. Maintaining structure.

4 Why Pay Structure? Clarifies the market and internal value fr each jb, and prvides a way t manage emplyee pay effectively. Quantifies cmpensatin csts & enables budget decisins. Validates cmpensatin strategy & aligns t business gals. Prvides a tl t talk with emplyees abut develpment. Ensures pay equity. Determines pay fr nn-benchmark jbs. Allws ease f administratin.

5 Requirements Cmpensatin philsphy. Organizatin-wide jb evaluatins. External market analysis.

6 Pay Structure Elements Pay Structure Includes: Pay Schedules Sets f Pay Grades, multiple markets gruped (gegraphy, industry, etc). Pay Grades a label fr a grup f jbs with similar relative internal wrth. assciated with a pay range. Pay Ranges the upper and lwer bunds f cmpensatin.

7 Step 1: Identify Multiple Schedules Prvides a way f gruping tgether multiple labr markets, using the same set f pay grades. Streamlines pay structure. Cnsideratin: hw cmplex is yur rganizatin? Industries and/r lines f business. Retail & Scial Services. Sales. Engineers vs Admin. Lcatins.

8 6 Different Pay Schedules: Hme Schedule 3 labr markets, within 2.5% f HQ Schedule A, Minus 15% Schedule 4 labr markets Schedule B, Minus 10% Schedule 7 labr markets Schedule C, Minus 5% Schedule 4 labr markets Schedule D, Plus 5% Schedule pen Schedule E, Plus 10% Schedule 1 labr market

9 Step 2: Determine Pay Grades There are n fixed rules fr every rganizatin. Decide hw many grades yu will have. Number f pay grades varies in respnse t: The size f the rganizatin. The vertical distance between the highest and lwest level jb. Hw finely the rganizatin defines jbs and differentiates between them (i.e. levels). The pay increase and prmtin plicy f the rganizatin. Determine the definitin f each grade.

10 Step 3: Develp Ranges Calculatins & Helpful frmulas: Midpint Differential. Distance between midpints =(MidB-MidA)/MidA Range Spread. Distance between bttm and tp f range =(Max-Min)/Min Typical range spreads are 30% t 60% Min relative t Mid. =Mid/(1+(Range Spread/2)) Max relative t Min. =Min*(1+Range Spread) Range Range Width Min Mid Max A 40% $8.50 $10.25 $12.00 B 41% $9.75 $11.75 $13.75 C 42% $11.25 $13.50 $16.00 D 43% $12.75 $15.50 $18.25 E 44% $14.75 $18.00 $21.25 F 45% $16.75 $20.50 $24.50 G 46% $19.25 $23.75 $28.25 H 47% $22.00 $27.25 $32.50 I 48% $25.25 $31.25 $37.50 J 49% $29.00 $36.00 $43.25 K 50% $33.25 $41.50 $49.75 L 52% $37.75 $47.75 $57.50 M 54% $43.25 $54.75 $66.50 N 56% $49.25 $63.00 $76.75 O 58% $56.25 $72.50 $88.75 P 60% $64.25 $83.50 $ Q 62% $73.25 $96.00 $

11 Cnsideratins: Difference at the base vs tp f structure. Bigger range spread at the tp, narrwer at the base. Time t prficiency. Differentiatin f skill sets. Manager input. Overlap between pay ranges. Lng tenure/high perfrming emplyees can earn higher wages. Prvides mre cst effective career prgressin within the rg.

12 Step 4: Assign Grades t Psitins; Adjust fr Internal Equity Align psitins t structure by matching market value with clsest range midpint. Adjust fr internal equity. Psitins with similar level f respnsibility and value t the rganizatin. Where market is between tw grades, use internal equity t tip. Internal Title Grade Internal Title Grade Internal Title Grade Billing & Cllectins Specialist I 11 Accunts Payable Specialist II 13 Branch Inside Sales III 14 Member Services Specialist I 11 Billing & Cllectins III r TL 13 Crprate Accuntant I 14 Service Delivery Agent I 11 Branch Inside Sales II 13 NOC Technician I 14 Desktp Supprt Technician 13 TAC Engineer II 14 Accunts Payable Specialist I 12 Marketing Crdinatr 13 Billing & Cllectins Specialist II 12 Office Manager 13 Crprate Accuntant II 15 Branch Inside Sales I 12 Prject Crdinatr 13 NOC Technician II 15 Member Services Specialist II 12 Quality Assurance Analyst II r TL 13 Prject Manager I 15 Quality Assurance Analyst I 12 Service Delivery Agent III r TL 13 Sftware Develpment QA I 15 Service Delivery Agent II 12 TAC Engineer I 13 TAC Engineer III r TL 15

13 Hw d yu use the pay range? Emplyee Placement in Range. Min = New Hire. Midpint = Prficient & meeting perfrmance expectatins. Abve midpint = Takes int accunt tenure, perfrmance, educatin whatever rg values mst. Guidelines r Plicies. Develp guidelines r plicies abut: Where new emplyees enter ranges. Hw current emplyees mve within ranges. What happens when an emplyee is prmted? Hw much discretin d managers have? Get specific, where it makes sense.

14 Metrics fr Managing EE Pay with Ranges Metrics fr managing EE Pay with Ranges Cmpa-rati and Range Penetratin are indicatrs f hw emplyees are perfrming relative t the ranges. Calculatins: Range Penetratin =(EE Pay-Min)/(Max-Min) Cmpa-Rati = EE Pay / Midpint In Practice: Use them t get specific in yur plicies r guidelines. Range Penetratin: 0% is Min, 50% is Mid, 100% is Max. Cmpa-Rati: 1 is Midpint. Cmpa-rati range varies by cmp strategy and mre, starting guideline is

15 Maintaining Cmpensatin Structure New psitins. Evaluate ranges t market. Annually based n market research. Shift ranges as necessary (2-3 yrs). Evaluate grade assignments. Revised jb duties. Ht jbs.

16 PayScale Delivers Where Other Cmpensatin Prviders Fall Shrt PayScale leads the wrld in cmpensatin knwledge with the freshest and mst detailed data frm ver 35 millin salary prfiles. Mre than 2500 rganizatins use PayScale s sftware and intelligence t get the greatest return n their talent. Smart businesses use PayScale Insight t recruit, retain and mtivate their peple. Visit ur blg: Jin ur Grup n LinkedIN: Cmpensatin Tday: HR Best Practices Mykkah Herner, MA, CCP Cmpensatin Cnsultant, PayScale, Inc. Laura Richardsn Client Executive, PayScale, Inc.

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