Pay grades and pay ranges are key components to creating a successful compensation plan and driving performance.
Pay Grades and Pay Ranges Defined
A pay range sets a minimum, midpoint, and maximum dollar amount that your company has determined it will pay for a given job. Employees’ salaries are determined within the range parameters based on their performance quality, proficiency, internal equity, scope of responsibility and tenure. Pay grades are a mathematically determined set of pay ranges with increasing midpoint differentials (the difference between the midpoint of one range and midpoint of the next range up) based on the nature of the positions included in the range and usually with overlapping boundaries. Grades provide a way to give structure to various pay ranges within a company.
Why are they important?
Grades and Ranges:
- Help with financial planning and projections.
- Ensure your business and compensation strategies align.
- Ensure pay equity and can be perceived as legal protection against an inequity claim.
- Inform salary movement related to career paths.
- Help determine how to pay unique positions.
- Makes administration and employee conversations related to compensation more transparent.
As an organization grows, grades help to ensure fairness, make it easier to make compensation decisions and share with employees how you make those decisions. As we shared in our blog post on tips for making compensation conversations more productive for managers and employees, employees who are well informed and communicated with clearly about the pay-setting process in their organization, walk away feeling much more satisfied even if they don’t agree with the actual number.
Is it time to create a compensation structure with grades and ranges?
If you answer yes to one of the following questions this may be a good time to create a compensation structure.
- Do you have jobs that may need to be leveled?
- Do you have unique or hybrid jobs that you can’t figure out how to pay?
- Do you have known pay issues that a structure would help fix? (i.e., legacy issues, compression issues, equity issues, budget issues)
For more tips on compensation including tips on using pay to drive performance visit our blog.