With 2010 salary increases expected to come in at an average 2.5% and experts questioning whether they will return to previous levels anytime soon, it's time to rethink salary ranges.
Base salary ranges are administrative tools whose purpose is to guide pay decisions in line with an organization's compensation philosophy. When well designed and used, they impose order on base salaries. They help ensure that employees are consistently, competitively and fairly paid.
With the exception of broadbanding and other alternative approaches, salary range spreads (the spread from range minimum to range maximum) have followed pretty consistent protocols over the past few decades. From George Milkovich and Jerry Newman's widely regarded textbook Compensation:
Top-level management positions commonly have range spreads of 60 to 120 percent; entry to midlevel professional and managerial positions, between 35 to 60 percent; office and production work, 10 to 25 percent. The underlying logic is that wider range spreads in the managerial jobs are designed to reflect the greater opportunity for individual discretion and performance variations in the work.
In my experience and consistent with the above, the most common salary range spread is 50%, with minimum and maximum set at 80% and 120% of midpoint respectively.
Range architecture like this made sense when it first caught hold, back in the 70's and 80's, a time when average salary increases were 8-10%. With salaries moving at that speed, employees could expect to progress through their salary ranges at a pace which matched their personal skill and performance development.
The times, however, have changed ... and so has the speed of base pay growth. And yet many - even most - organizations are managing salaries with ranges similar to those described by Milkovich and Newman. Which means there is (and, frankly, has been) a disconnect between the reality of base salaries today and the tools we are using to manage them.
Consider this: If the delicate dance of salary structure adjustments versus salary increases continues its pre-recession pattern whereby ranges are typically adjusted annually by an amount equal to 60-70% of the average budgeted salary increase, then projected 2010 increases of 2.5% mean ranges will be adjusted by an average of 1.75%. A scenario in which the average employee makes about .75% headway in their respective salary range. A scenario, when coupled with a salary range spread of 50%, in which it would take the average employee about 25 years to progress from the range minimum to midpoint (typically the "market rate" for their position).
Sound like a winner to you? Me neither.
The answer? If salaries stay on the low growth path (and inflation doesn't enter the picture to alter the paradigm in any substantial way), I think we'll be forced to consider narrower ranges - ranges which support a more reasonable salary progression relative to the market or "target" value for the job. It may also, however, be time to begin fundamentally rethinking the kinds of tools we use to manage base pay.