A nightmare about salary ranges

Simplify your salary structuresA few months ago an HR Manager showed me the  (long, hard) work she had done on creating salary ranges for her company, and asked me for feedback.

I have to say I was really surprised by what I saw : for a small-size company of less than 200 employees, she had created 9 different job families, each one with its distinct salary ranges !

For example, mechanical engineers in grade G had a minimum salary of 8, a midpoint of 10, and a max of 12, while electrical engineers in the same grade G had a 9 – 11 – 13 salary range. And so on, and so on…

Worse : the ranges for these related job functions differed only by a small amount, as shown in my very theoretical example above.

Well, at least they had the same grading structure across job families 🙂

My advice was very simple : sim-pli-fy.

Most companies can live with 2 or 3 salary structures : one for Sales and one for non-Sales for example. The driver in that case is the fact that the split between fixed and variable pay is very different between these functions, and therefore a different salary range is required.

For the non-Sales functions, it may be that 2 structures are required, one for the majority of job families, and the other one for either the “star” function (considered as the core of the business), or for job families that are very specific, such as R&D for example – often tied to expertise-based career progression, with longer tenure in the company, long-term projects, and often,  less frequent promotions than in the rest of the organisation.

And that’s it. 3 maximum.

If 3 structures were enough to handle the thousands and thousands of employees in Microsoft, surely your company can do with fewer than 9 :-)…

What are the drawbacks of having too many salary structures in your organisation?

A few jump to mind :

  • First, you get a big risk of perceived inequity between the job families, especially if they are similar in overall nature. Employees will complain, managers will come knocking on your door to complain and ask for help or exceptions, and everyone will focus on something else than work.
  • You will reduce your internal mobility as employees will refuse to transfer to job families with lower salary ranges, or you won’t find internal candidates and will have to always hire externally : more expensive – more lengthy – and less career development for your staff.
  • Given that the midpoints of their respective salary ranges are different, two employees in similar roles at the same grade and with the same base pay and performance rating may receive different merit increases. That won’t help with your perceived inequity issue….
  • Such a complex approach means it will be difficult to explain your salary approach to management, employees and new hires alike.
  • And finally, this will be an administrative nightmare to handle, from performing salary reviews to updating salary ranges in your payroll system to managing internal transfers, to calculating bonuses and more…

So if you have more than 3 salary structures in your company, do yourself a favour and cut this clutter out of your life!

 

Read All you need to know : from compensation surveys to salary ranges and salary review, my resource page if you want to find out more about the topic of salary structures.

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Comments

  1. I believe in one salary structure for all, based on solid objective job evaluation. we are seeking less admin and less complicated HR policies and processes .
    i will go with traditional salary structure for big organization where people progress based on their contribution and responsibilities (promotions) or Broadband Salary Structures for smaller organization in which people progress as career development .

    • I agree Noora, the simpler the better. Sometimes you need to have more than one salary range though, for example if you have a sales population and market says : small basic, high variable pay, while the rest of your organisation is in a more traditional approach with higher basic and smaller variable pay. In that case for the same grade, basic pay between the Sales people and the rest of the company would be very different, hence the need for 2 structures.
      I like how you simply described the advantages of traditional and broad banding 🙂
      See you soon !
      Sandrine

  2. Good morning Sandrine.

    Just wanted to say I couldn’t agree more. I am not an advocate of complicating Compensation and how it is understood. We have a hard enough job as it is especially in administration. So simplify as much as posible, make it easily understood as complexities do bring in ambiguity and more questions hence dissatisfaction.

    Thanks for you usual dose on C&B, have a great weekend.

    Ibtisam

    • Thanks a lot Ibty. Little by little, common sense will prevail, knowledge and understanding will spread, and Compensation and HR pros will integrate psychological impacts more and more into their decision-making and communication. I hope this blog plays its (small) part in helping our community improve its skills and outputs !

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