Updating salary ranges… or not ?

When the time of salary review approaches, most Compensation managers will start preparing by reviewing the salary ranges in their organisation.

Using data from compensation providers, we look at the midpoint, minimum and maximum of our salary ranges. Do they still reflect the market ?

The first consideration should be “how do we define market” ?

Are you in the same industry or did you / do you plan to expand to new activities ? Are your competitors the same as last year ? Do you lose employees to new companies ? Are there new, interesting organisations participating to the surveys you are part of ? Answering these questions will help you decide if you need to change your peer group or keep exactly the same as last year.

Is your compensation philosophy still relevant ?

Do your business results impact your target position to market ? Did you introduce a new incentive scheme and does the new mix of fixed/variable pay have an impact on what you consider fitting ? For example, do you still target the median / average / third quartile / Nth percentile, or do you use the same spread (the % you use to calculate the minimum and maximum around the midpoint) ?

Once you have the information, you have to assess whether it is worth updating your salary ranges.

Minor changes in market movement should not push you to modify your ranges. Two main reasons for this :

1. The creation of salary ranges is not a science. I know we like to think we are very rational in our design, but truth is, we aggregate data, we consider making “steps” between midpoints that are more or less equally spaced, and we smooth and round numbers. So a few percentage points should not automatically imply that we need to change our almost-scientific salary range boundaries.
2. It may be worth waiting to see if the increase or decrease in value will be confirmed the following year, especially when the change is small. (I am assuming that you did not change your methodology to estimate your min, max and midpoint).

Overall, what matters is that you review the situation on a regular basis, at least every 2 years based on actual survey data in a stable market, more often in emerging markets or when the economy changes fast.

Just don’t make changes for the sake of making changes, or to “prove” that you have worked on the topic – simply explain the reason for your decision not to update the salary range, and your credibility will be maintained or even increased. After all, not updating means you made the right decision for the business in this particular set of circumstance !

Related posts :

• What is your approach to aging ?
• How are salary reviews done ?
• What to consider for salary planning ?
• How to decide how many promotions to grant each year