Are Salary Ranges Still Relevant?

Our salary ranges are not serving us as well as they once may have.  We know it.  Unhappily, most employees know it, too. 

The traditional salary range model, which is meant to convey the essence of the pay deal we offer employees, can be a challenging fit to today's reality. The salary range architecture most organizations use today gained popularity in a period when base pay budgets were moving at a much faster pace (e.g., 7-10% annually in the late 70's and early 80's compared to the 3% of today). 

And then there is the fact that variable pay - incentives, pay contingent on performance achievements - holds an increasingly prominent place in the overall compensation mix for many jobs.

Are salary ranges still the cornerstone of the employment deal in that they outline and communicate the rules for setting and growing base pay?  Or are they an antiquated theoretical construct whose time has come and gone, an idea no longer in step with the realities of the the world today?

My thoughts?  Yes ... and yes.

I've had the chance to work with many organizations who don't have a formal salary structure, either smaller organizations yet to put in place any pay rules and policies or more established businesses who have (at some point) ditched their structures in an attempt to foster more "flexibility."  What I've found, more times than not, is that salary decisions in these places are all over the map, with little rhyme or reason, and often made in response to pressure (employee complaints or implicit/explicit threats of leaving).  And everyone knows it.  Especially the employees.

Having a salary structure of some kind in place ensures that there is a set of guard rails to prevent pay decisions from falling too far off the road. Perhaps more importantly, having a structure in place gives employees at least a minimal amount of assurance that there are rules which are followed and that salary decisions aren't based entirely on whim, favoritism or discrimination.

And yet, clearly, our long-held model of base salary management is falling out of step with business and economic reality.

Where do we go from here? I don't believe that completely ditching structure and guidelines for base pay determination is an answer.  Do we make them more narrow, perhaps even a single rate for like-skilled/like-situated positions or people, and use premium and variable pay (easier to give and take away) to do any needed differentiation?  Do we make them wider?  Broadbanding taught us that less is not necessarily more (or is it that bigger isn't necessarily better?).  Do we move toward some newfangled mash-up of pay steps and ranges?  

I'll bet that there is some interesting experimentation going on out there.

Creative Commons image "Money" by olivierterrier

Comments

[Deb Alex]

The problem I am having with a domestic salary structure is New York and San Francisco areas have continued to have much greater salary increases than other areas. I added a new geographic area just for those locations, but they have continued the same path making it impossible to generate a standard salary structure where steps and ranges are uniform. Can you address growing geographic discrepancies?

[Ann Bares]

Hi Deb,

By "a new geographic area for those locations," I assume you have created a separate geographic structure? If so - and I think this is the most common approach to managing pay across geographies that pay differently - you will want to (and now have the flexibility to) adjust that/those structure(s) by a different amount.

The trick is to set up a structure architecture - including and encompassing geographic differentials where applicable - that allows you the flexibility to adjust different structures at different "paces."

Hope that helps!

Thanks for your comment!

Ann