When it comes to compensation management, understanding salary ranges and how to determine them is crucial. In this article, we will delve into the concept of salary ranges, explore factors to consider when building them, discuss conducting a salary benchmarking review, and provide actionable steps to create effective salary bands. If you're an employer looking to attract and retain talent this guide will equip you with the knowledge you need.

What is a Salary Range and its Significance?

A salary range, also known as a salary band, represents the minimum and maximum amount of money an employer is willing to pay for a specific job role. This range is determined based on factors such as the job's function, level, and location. By defining salary ranges, organizations establish a framework for fair and transparent compensation, control labor costs, and effectively compete for talent in their industry.

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Factors to Consider When Building Salary Ranges:

Building accurate and competitive salary ranges requires some understanding of both the role the salary range will be used for, and the company at large. Consider the following factors during the process:

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1. Information about the Job:

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a) Department: What type of work an employee does influences the salary range. For instance, most companies would pay an accounting manager differently than a product design manager, even if they were at the same level in the same location. Consider the nature of the work performed by each department when determining salary ranges.

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b) Level: Evaluate the skill level and experience required for the position. A senior developer with a decade of experience will likely earn more than a junior developer with only a couple of years of experience.

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c) Location: Take into account the cost of labor and talent demand in specific geographic areas. For instance, a software engineer in New York City or San Francisco may command higher salaries compared to Tampa, Florida.

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Related:

Guide: How to Choose the Right Location-Based Compensation Strategy
On-Demand Webinar: How to Choose the Right Location-Based Compensation Strategy

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2. Information about your Company:

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a) Industry: Each industry has its own pay scales and norms. For example, software and technology companies generally offer higher compensation compared to retail or hospitality businesses.

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b) Compensation philosophy: Define your organization's approach to pay, considering factors such as culture, goals, and strategy. Some companies may offer above-market rates to attract and retain top talent, while others may compensate below market rates but provide additional benefits like stock options or flexible work arrangements.

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Creating a compensation philosophy provides a foundation for organizing your approach to compensation and aligning it with your company's objectives.

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Related: 

Guide: How to Launch Your Compensation Strategy

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Conducting a Salary Benchmarking Review

A salary benchmarking review serves as an essential early step in establishing accurate salary ranges. This process involves comparing your organization's salary ranges with those of your competitors or industry peers. Follow these steps to conduct a salary benchmarking review effectively:

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1. Define your departments and levels: Identify the specific departments or job families and levels for which you need to gather salary data. This information ensures relevant comparisons and helps avoid misleading benchmarks based solely on job titles.

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2. Collect salary data: Gather reliable and relevant salary data from various sources, including:

• Pave's free benchmarking tool, which provides salary information based on job title, location, and more. Click here for access to Pave's salary benchmarking tool. 
• Consult with your recruiting and talent team to understand candidates' salary expectations.
• Network with industry contacts who can share insights and provide salary ranges specific to your field.

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Consider triangulating data from multiple sources to build a more comprehensive understanding of market rates, especially for roles with which you may be less familiar.

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Building Your Salary Bands

Once you have conducted a salary benchmarking review, it's time to build your salary bands. Follow these steps to create effective salary ranges:

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1. Build your salary ranges: Utilize the salary benchmarking data you collected, focusing on job families, levels, and locations. Start with the benchmark as the midpoint and add or subtract a percentage (typically between 5-20%) to establish minimum and maximum values.

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2. Analyze the data: Compare your current team's salaries to the new salary ranges. Look for any discrepancies or trends that indicate whether your pay is too high or too low. Adjust your minimum and/or maximum values accordingly and create new ranges for new positions as needed.

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3. Ensure fairness and equity: If you consistently find that certain employees are paid lower than their range, consider implementing "market-based compensation changes" to bring their salaries to the minimum of their respective bands. Salary bands serve as a useful tool to promote fair and equitable pay across groups.

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4. Review and update: Salary benchmarking is an ongoing process. Regularly monitor market changes and periodically update your salary ranges to remain competitive and maintain fairness in compensation.

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Conclusion

Establishing appropriate salary ranges is vital for effective compensation management. By understanding the concept of salary ranges, considering relevant factors, conducting a salary benchmarking review, and building accurate salary bands, organizations can attract and retain top talent, promote fairness and equity, and control labor costs. Use the insights and practical steps outlined in this guide to create a competitive and transparent pay structure that aligns with your organization's goals and values.