Salary Range Structure Practices

Salary structures are an important component of effective compensation programs and help ensure that pay levels for groups of jobs are competitive externally and equitable internally. An effective salary structure allows management to reward performance and the development of skills while controlling overall base salary costs by providing a cap on the range paid for particular jobs or locations.

The following is a summary of results from a 2009 Culpepper Pay Practices Survey on base salary range structure practices, conducted Aug. 20 through Oct. 8, 2009, primarily among North American technology, life sciences and health care services companies.

Key Survey Findings

• 71 percent of surveyed companies reported having formal base salary range structures.

• 77 percent of companies with formal base salary range structures review their structures annually.

• 94 percent use market data when designing salary structures.

• 78 percent use traditional salary structures; 11 percent use broadband structures.

• 55 percent have multiple structures varying by job and/or location.

• Salary range spreads and midpoint-to-midpoint differentials vary significantly by job level.

Salary Ranges and Structures Defined
A salary range is the span between the minimum and maximum base salary an organization will pay for a specific job or group of jobs.

A salary range structure (or salary structure) is a hierarchal group of jobs and salary ranges within an organization. Salary structures are often expressed as pay grades or job grades that reflect the value of a job in the external market and/or the internal value to an organization.

Percent of Companies with Formal Base Salary Range Structures
Seventy-one percent of surveyed companies reported having formal base salary range structures. However, as companies increase in size they are more likely to have salary range structures. Less than half of companies with fewer than 100 employees use salary range structures. In contrast, about four out of five companies with more than 500 employees use salary range structures.

Frequency of Salary Range Structure Review
Salary range structures should be reviewed regularly to maintain a competitive edge in attracting and retaining top talent. Most companies with formal base salary range structures review their ranges and structures annually, while 17 percent of companies review salary structures every two or three years. Fourteen percent of participants with formal salary range structures reported that they do not use salary structures with executives.

Companies choosing “other/varies” indicated that the frequency for reviewing structures varies by type of job, business unit, location or union status. Examples include:

• Some companies with union employees review salary structures based on the length of multiyear labor contracts and review other nonunion jobs annually.

• Some companies in very competitive job markets review salary structures for critical jobs semi-annually.

Methods Used to Design Salary Range Structures
The two most common methods companies use to design base salary structure ranges are market pricing using external market data and point factor focusing on internal pay equity.

Most companies use a market-pricing approach with current salary survey data for individual jobs to design and adjust salary range structures. Only 4 percent of companies rely solely on the point-factor method, which assigns point values to jobs within a company.

Twenty-four percent of companies blend market-based and point-factor approaches when designing salary range structures.

Traditional vs. Broadband Salary Structures
Traditional salary structures are organized with numerous layers and range structures (or pay grades) with a relatively small distance between each range. Traditional structures provide a hierarchal system enabling employees to be promoted from one pay grade to another. Designed correctly, traditional structures enable the recognition of differing rates of pay for performance and guarantee a reasonable level of control over internal compression and salary expenditures.

Broadband salary structures are more flexible and consolidate pay grades into fewer structures with wider salary ranges. Broadband structures tend to be used by relatively flat organizations with few levels and small companies without a dedicated compensation staff to establish traditional structures.

On average, 78 percent of companies use traditional salary structures while 11 percent use broadband structures. Nine percent utilize a hybrid or mix of traditional and broadband structures.

Single vs. Multiple Salary Structures
Fifty-five percent of companies with salary range structures have multiple structures varying by job and/or location.

As companies increase in size, they typically have a higher number of salary structures to accommodate more locations and job structures. Companies with more than 500 employees are more likely to have multiple locations and use different salary structures varying by location than companies with fewer than 500 employees.

There is a strong correlation between job level and number of salary structures. Single salary structures are most common for executives, and multiple salary structures are most common for lower-level positions. For example, 58 percent of companies have single structures for executives and 63 percent of companies have multiple salary structures for hourly and nonexempt employees.

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Culpepper and Associates conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs.

Reposted with permission

Source: 2009 Culpepper Salary Range Structure Practices Survey, November 2009, www.culpepper.com

Related Culpepper Survey Reports:

Salary Range Structure Increases for 2009 and 2010, September 2009

Salary Increase Budgets for 2009 and 2010, September 2009

Related Article:

Building a Market-Based Pay Structure From Scratch, SHRM Online Research Articles, December 2008

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