How To Build Pay Grades And Salary Ranges

How to Build Pay Gradesand Salary RangesMykkah Herner, MA, CCPCompensation Consultant,PayScale, Inc.Laura RichardsonClient Executive, PayScale, Inc.www.payscale.com

2500 CustomersCreator of the largest database of individualcompensation profiles in the world, PayScale, Inc.provides an immediate and precise snapshot ofcurrent market salaries to employees and employersthrough its online tools and software.35 Million SalaryProfilesPayScale’s products are powered by innovativesearch and query algorithms that dynamicallyacquire, analyze and aggregate compensationinformation for millions of individuals in real time.13,000 Positions250 CompensableFactorsPublisher of the quarterly PayScale IndexTM,PayScale's subscription software products foremployers include PayScale MarketRateTM andPayScale InsightTM. Among PayScale's 2,500corporate customers are organizations small andlarge across industries including Mozilla, Tully’sCoffee, Clemson University and the United StatesPostal Service.www.payscale.com

AGENDAo Why pay structure.o Requirements for building structure.o Building Structure.oStep 1: Identify multiple schedules.oStep 2: Determine pay grades.oStep 3: Develop ranges.oStep 4: Assign grades to positions & adjust for internal equity.o Using pay ranges.oCompa-Ratio.o Maintaining structure.www.payscale.com

Why Pay Structure?o Clarifies the market and internal value for each job, and providesa way to manage employee pay effectively.o Quantifies compensation costs & enables budget decisions.o Validates compensation strategy & aligns to business goals.o Provides a tool to talk with employees about development.o Ensures pay equity.o Determines pay for non-benchmark jobs.o Allows ease of administration.www.payscale.com

Requirementso Compensation philosophy.o Organization-wide job evaluations.o External market analysis.www.payscale.com

Pay Structure ElementsPay Structure Includes:Pay Scheduleso Sets of Pay Grades, multiple markets grouped (geography, industry, etc).Pay Gradeso a label for a group of jobs with similar relative internal worth.o associated with a pay range.Pay Rangeso the upper and lower bounds of compensation.www.payscale.com

Step 1: Identify Multiple Scheduleso Provides a way of grouping together multiple labor markets,using the same set of pay grades.o Streamlines pay structure.o Consideration: how complex is your organization?ooIndustries and/or lines of business.oRetail & Social Services.oSales.oEngineers vs Admin.Locations.www.payscale.com

6 Different Pay Schedules:o Home Schedule– 3 labor markets, within 2.5% of HQo Schedule A, Minus 15% Schedule – 4 labor marketso Schedule B, Minus 10% Schedule – 7 labor marketso Schedule C, Minus 5% Schedule – 4 labor marketso Schedule D, Plus 5% Schedule – openo Schedule E, Plus 10% Schedule – 1 labor marketwww.payscale.com

Step 2: Determine Pay Gradeso There are no fixed rules for every organization.o Decide how many grades you will have. Number of pay grades varies inresponse to:oThe size of the organization.oThe vertical distance between the highest and lowest level job.oHow finely the organization defines jobs and differentiates between them(i.e. levels).oThe pay increase and promotion policy of the organization.o Determine the definition of each grade.www.payscale.com

Step 3: Develop RangesCalculations & Helpful formulas:o Midpoint Differential.oDistance between midpointso (MidB-MidA)/MidAo Range Spread.oDistance between bottom and top of rangeo (Max-Min)/MinoTypical range spreads are 30% to 60%o Min relative to Mid.o Mid/(1 (Range Spread/2))o Max relative to Min.o Min*(1 Range %44%45%46%47%48%49%50%52%54%56%58%60%62%Min 8.50 9.75 11.25 12.75 14.75 16.75 19.25 22.00 25.25 29.00 33.25 37.75 43.25 49.25 56.25 64.25 73.25Mid 10.25 11.75 13.50 15.50 18.00 20.50 23.75 27.25 31.25 36.00 41.50 47.75 54.75 63.00 72.50 83.50 96.00Max 12.00 13.75 16.00 18.25 21.25 24.50 28.25 32.50 37.50 43.25 49.75 57.50 66.50 76.75 88.75 102.75 118.50www.payscale.com

Considerations:o Difference at the base vs top of structure.oBigger range spread at the top, narrower at the base.oTime to proficiency.oDifferentiation of skill sets.oManager input.o Overlap between pay ranges.oLong tenure/high performing employees can earn higher wages.oProvides more cost effective career progression within the org.

Step 4: Assign Grades to Positions;Adjust for Internal Equityo Align positions to structure by matching market value with closestrange midpoint.o Adjust for internal equity.o Positions with similar level of responsibility and value to the organization.o Where market is between two grades, use internal equity to tip.Internal TitleGradeInternal TitleGradeInternal TitleGradeBilling & Collections Specialist I11Accounts Payable Specialist II13Branch Inside Sales III14Member Services Specialist I11Billing & Collections III or TL13Corporate Accountant I14Service Delivery Agent I11Branch Inside Sales II13NOC Technician I14Desktop Support Technician13TAC Engineer II14Accounts Payable Specialist I12Marketing Coordinator13Billing & Collections Specialist II12Office Manager13Corporate Accountant II15Branch Inside Sales I12Project Coordinator13NOC Technician II15Member Services Specialist II12Quality Assurance Analyst II or TL13Project Manager I15Quality Assurance Analyst I12Service Delivery Agent III or TL13Software Development QA I15Service Delivery Agent II12TAC Engineer I13TAC Engineer III or TL15www.payscale.com

How do you use the pay range?Employee Placement in Range.o Min New Hire.o Midpoint Proficient & meeting performance expectations.o Above midpoint Takes into account tenure, performance,education – whatever org values most.Guidelines or Policies.o Develop guidelines or policies about:o Where new employees enter ranges.o How current employees move within ranges.o What happens when an employee is promoted?o How much discretion do managers have?o Get specific, where it makes sense.www.payscale.com

Metrics for Managing EEPay with RangesMetrics for managing EE Pay with RangesCompa-ratio and Range Penetration are indicators of how employees are performingrelative to the ranges.Calculations:o Range Penetration (EE Pay-Min)/(Max-Min)o Compa-Ratio EE Pay / MidpointIn Practice:o Use them to get specific in your policies or guidelines.o Range Penetration:o0% is Min, 50% is Mid, 100% is Max.o Compa-Ratio:o1 is Midpoint.oCompa-ratio range varies by comp strategy and more, starting guideline is .9-1.1www.payscale.com

MaintainingCompensation Structureo New positions.o Evaluate ranges to market.oAnnually based on market research.oShift ranges as necessary (2-3 yrs).o Evaluate grade assignments.oRevised job duties.oHot jobs.www.payscale.com

PayScale Delivers Where Other Compensation Providers Fall ShortPayScale leads the world in compensation knowledge with the freshest and mostdetailed data from over 35 million salary profiles. More than 2500 organizationsuse PayScale’s software and intelligence to get the greatest return on their talent.Smart businesses use PayScale Insight to recruit, retain and motivate their people.Visit our blog: http://blogs.payscale.com/compensation/Join our Group on LinkedIN: Compensation Today: HR Best PracticesMykkah Herner, MA, CCPCompensation Consultant,PayScale, Inc.Laura RichardsonClient Executive, PayScale, Inc.www.payscale.com

Pay Structure Elements Pay Structure Includes: Pay Schedules o Sets of Pay Grades, multiple markets grouped (geography, industry, etc). Pay Grades o a label for a group of jobs with similar relative internal worth. o associated with a pay range. Pay Ranges o the upper and lower bounds of compensation.