Setting Pay Ranges

GLC

I need a couple of points clarified when setting Pay Ranges. The one thing I am most unclear about is defining mid-point and market price as the same thing. I've read the mid-point is suppose to be the market rate for a fully qualified person. If it is necessary to go to the local market and replace a position, this is the price we would pay for a person who meets all the qualifications and who has all of the experience need to be fully competent without training on the job. This was the definition I was given at a recent seminar.

We have a counselor position where the market price (that's what I call it) is $30,000. That is the going rate that companies pay for this position. It would be the price that we would pay a new master's level graduate. It's the market price but can't possibly be the mid-point. Maybe I also need to use different language and not call the market price the going rate. I have set the range for this position as min - $28,158 mid - $35,197 max - $42,237. Any thoughts .

Do you generally start employees between the minimum and 25th percentile or do you try to get closer to the mid-point? I'm concerned that if we start them too high, they will get to the mid-point quickly or go over.

The most surprising thing that was said in a recent training is that we should never go past the mid-point, if we are keeping are ranges up-to-date. I don't see how that is possible, especially with long-term employees. Any thoughts on that.

davids

My first comment, based on 20+ years in HR, is that when it comes to compensation, there is no one right way to do things. You need to design a compensation structure that works for the culture of your work place and your industry.

I have worked with structures that brought in new hires slightly below market and then brought them up to market quickly. Once the employee hit the market rate, increases slowed down. It really wasn't good or bad. It just fit into the philosphy of that organization.

I do think the starting point for establishing a compensation strategy is with a compensation philosophy. Does your organization want to lead the market, match the market or lag the market? Also, how are you defining compensation? Is it just wages; or does it include benefits? At my current employer, our compensation philosophy is to be within 5% of market for total compensation (including health insurance, retirement contributions, deferred compensation match, and leave).

I am not sure I answered your question, but hopefully, this gave you some things to think about.

stilldazed

I generally agree with DavidS. There is no one cookie-cutter compensation plan that will work for every employer, and whatever you have in place in your company must be affordable to your company, support your company's culture, place you where you want to be with respect to compensation in your geographic locale and industry, and result in workers for you.

I have not had specific training in compensation planning but have had to design compensation packages and wage plans. As for wages only, I have done something similar to what you refer to with minimum, midpoint, and maximum wages per job category or level. I defined the midpoint as something a fully qualified candidate might earn who could perform who met all prerequisites for the position and performed the job as expected. I then defined a percentage range and placed my midpoint in the middle of the range. For example, if I used your $30,000 as the midpoint in a position that I assigned a 25% range to, the minimum became 12.5% under ($26,250) and the maximum became 12.5% over ($33,750). Defining the ranges involved the same variables as establishing the midpoint, including never allowing the minimum to fall below minimum wage and trying to create an opportunity for the company to identify individuals whose wages might be unreasonably high for their job.

Ultimately, I will say that it was a painful process, there was much resistance, but after nearly 4 years, it is working. Attritution and general concession to the process has allowed it to take hold, and it is a valuable tool. As for workers whose wages were found to be high, their wages are being held until the midpoint catches up to their current wage, and they are being given alternative methods of reward to recognize their performance and not further inflate their wages.

Finally, we use a hiring wage of minimum to about the 25th percentile, based on experience/training, and the ultimate idea is that wages do not exceed the midpoint. If you get this implemented, your accounting staff will appreciate that ability to forecast wages with some degree of certainty.

best wishes.