Salary Ranges - Why Should We?

Are established salary ranges necessary?  Are they desirable?  Reader Britney asks about the pros and cons of setting salary ranges. 

Formal salary ranges aren't mandatory, of course.  There is no law requiring that you put them in place.  But they do serve a useful purpose, which is why so many organizations have them.  A 2007 poll conducted by WorldatWork found that more than 86% of responding members had a formal salary structure of some type (either a more traditional structure, broad bands or some combination).  As a general rule, the larger the organization, the more likely it is to have implemented some type of formal salary structure.

If well-designed, your salary ranges should serve as the living embodiment of your compensation philosophy - and your larger talent strategy - by guiding all salary decisions accordingly.  Having salary ranges in place can ensure that salary decisions, from new hires to promotions, are made in light of an objective and consistent set of rules.  They provide at least a first line of defense against salary discrimination, intentional or otherwise, by ensuring that employees performing the same job are granted the same salary opportunity.

Last, but certainly not least, formal salary ranges provide you with a tool for proactively managing your salary dollars.  For many organizations, employee pay is one of the largest costs of doing business.  Having a formal structure against which to track your practices is the best way to ensure that you are spending as you intend to.  It's an ROI thing; something your CFO understands and you had better, too.

These are all "pros", of course.  The "cons"?  Well, like any other form of control, salary ranges will limit the flexibility your managers have around salary decisions.  And there is a time and resource commitment involved in setting up and managing salary ranges on an ongoing basis. 

For most organizations (with the exception of the very smallest), I think the "pros" of formal salary ranges outweight the "cons" - but I have an undeniable bias.  What do you think?

Creative Commons Photo: "Dollar" by Daquella Manera

Comments

[KD]

Hi Ann -

I'm an adovocate of ranges. In a world where I can't be an advocate for full pay transparency due to privacy issues, I think it gives me the best method to have an appropriate level of transparency and drive conversations with employees about how their role is valued by the marketplace and the organization. Keep up the great work...

Thanks - KD

[Ann Bares]

KD-

Great point - ranges also provide us with a structure (and a story, if you will) to help us talk with employees about their pay.

From one fan of ranges to another ... thanks for sharing the thought!

[E James (Jim) Brennan]

I've been on record for many decades as a scoffer re ranges. Their essential functions (comparison, communication and control) can be better achieved by alternatives lacking their defects.

Job values are critical... what your target rate is. Entry rates are critical... the minimum market-clearing rate for replacement cost must be right for employment attraction and retention. Some employers have used entry rate as their minimum target job value and don't worry about the "average" or mid, as long as it makes sense in the maturity curve.

Note that those two critical rates (entry and target) change a lot (sometimes very very quickly), vary by position (even amidst others "graded the same" at some point in time) and don't lend themselves easily to any bracketing concept (grade or band or level) that captures a broad bunch of other disparate positions.

Maximums are completely arbitrary and capricious, totally indefensible and suicide-points for comp people who try to enforce them over the demands of An Important Officer wanting to retain a critically vital human asset. So why bother with maximums? Cost control can be better (more accurately and appropriately) achieved in other ways that don't carry negative baggage: like, imposing a subjective ceiling too high for some and too low for others and thus technically ridiculous to the knowledgable; or creating an expectation of automatic progression to every max or an infinite pairing of positions despite actual competitive/internal realities.

But grade ranges permit lots of internal negotiations with power brokers and require a whole lot of care and maintenance and all that employs and empowers a pile of HR people couldn't otherwise justify their existence. Nuff' said.

[E James (Jim) Brennan]

(in response to the inevitable, "but how, without a maximum, would you restrain payroll spending?" questions...)

It's their budget, not yours. Comp should remain the pay cop or salary umpire, required/empowered to blow a whistle when the proposed rate appears excessive to you. Remember, you enforce their org's rules but you don't ultimately control the purse strings; so kick it upstairs, demanding an additional one or two sign-offs approving the exception request. Make them justify it to THEIR superiors, which is what they would do anyway, if you enforced a silly ceiling rule. Get yourself out of the crosshairs. Save your blood and bruises for a more important winnable fight, I suggest.

[Ann Bares]

Jim:

I appreciate your (obviously strong) opinion on the matter. All I can say is that I disagree. :)

[John Kosky, SPHR, CCP, CEBS]

Ann,
I have mixed feelings about how formal salary structures play out in practice and agree with a lot of Jim's response. Perhaps the most challenging consequence of formal salary structures is determining a starting salary for a new hire and where he/she should be placed in the salary range. Factoring in labor market realities of hot skills, supply/demand issues, and salary expectations (most people don't want to change roles unless there is a salary increase), how can compensation practitioners reconcile the need to adapt to market conditions while operating under formal salary ranges? In my opinion, the front end of the compensation cycle (starting salaries) is where formal salary structures are flawed. The methodology simply feels like an primitive, out-of-touch, management tool. I think structures are fine as a tool for many forms of internal analysis. In practice, the range maximum dilemma is not as difficult since organizational culture drives how this practice is viewed and enforced.

I'd be interested in hearing your thoughts on how formal programs can work in a rapidly, changing labor market, as well as assist organizations in determining starting salaries with minimal friction.

[Ann Bares]

John:

Thanks for sharing your thoughts and concerns - one of the things I like best about having this forum is to get exposed to the perspectives and opinions of others.

My experience in working with a lot of organizations over 20+ years, many with formal programs/structures and many without, leads me to believe that some form of structure is important. Pay decisions are difficult for a host of reasons - asking managers to make pay decisions without the benefit of guidelines and guardrails, in my experience, amounts to making a difficult job even harder - and more risky.

You ask how formal programs work in a rapidly changing labor market - I ask how you can expect leaders to make pay decisions that are consistent, non-discriminatory and aligned with the organization's intent and priorities, in a fluid environment, without the benefit of guidelines and guardrails? Certainly, in these days and times, it behooves us to keep our programs as nimble and flexible as we can, but I would not be a fan of throwing them out.

That's my take!