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14,000 Positions 3000 Customers 11 Countries

250 Compensable Factors41 Million Salary Profiles

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AgendaWhy have a Pay Structure

Building Structure• Step 1: Identify pay schedules

• Step 2: Determine pay grades

• Step 3: Develop ranges

• Step 4: Assign grades to positions & adjust for internal equity

Using Pay Ranges

Deviating from the Structure

Immediate Actions

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Why have pay structure• Clarifies the market and internal value for each job, and provides

a way to manage employee pay effectively

• Quantifies compensation costs & enables budget decisions

• Validates compensation strategy & aligns to business goals

• Provides a tool to talk with employees about development

• Ensures pay equity

• Determines pay for non-benchmark jobs

• Allows ease of administration

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Why not?

• Small number of jobs

• Quick-moving jobs

• Typical organization

• Just the facts!

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Requirements

• Develop compensation philosophy & strategy

• Know your jobs

• Conduct market analysis

• Know organizational priorities

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• Pay Schedules

• Pay Grades

• Pay Ranges

Pay Structure Elements

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Building StructureStep 1: Identify Pay Schedules

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Identify Pay Schedules

Ensures competitive pay to local

market and internal alignment

Consider Organizational Complexity

• Industries and/or Lines of Business

• Job Functions

• Locations

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6 Different Pay Schedules:

o Home Schedule– 3 labor markets, within 2.5% of HQ

o Schedule A, Minus 15% Schedule – 4 labor markets

o Schedule B, Minus 10% Schedule – 7 labor markets

o Schedule C, Minus 5% Schedule – 4 labor markets

o Schedule D, Plus 5% Schedule – open

o Schedule E, Plus 10% Schedule – 1 labor market

For example…

Building StructureStep 2: Determine Pay Grades

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Determine Pay GradesNumber of pay grades varies in

response to:

• Size of the organization

• Distance between the highest and

lowest level job

• How differentiated the jobs are (i.e.

levels)

• The pay increase and promotion policy

of the organization

Determine the definition or label for

each grade

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Building StructureStep 3: Develop Ranges

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Midpoint Differential.

=(MidB-MidA)/MidA

Range Spread.

=(Max-Min)/Min

Min relative to Mid.

=Mid/(1+(Range

Spread/2))

Max relative to Min.

=Min*(1+Range Spread)

Develop Ranges

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Considerations

Range spread at base vs top of structure

Overlap between pay ranges

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Building StructureStep 4: Assign grades to positions and adjust for internal alignment

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Align positions to structure by matching market value with closest range midpoint

Assign Grades to Positions

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Adjust for Internal Alignment

•Positions with similar level of responsibility and value to the organization

•Where market data is between two grades, use internal equity to tip

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Example

How do you use pay ranges?

• Understand employee placement in range

• Develop guidelines or policies

• Develop processes

• Train your managers

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Understanding Range Penetration (RP)

RP = (EE Pay – Range Min) / (Range Max - Range Min)

• Indicator of how employee is positioned inthe range

• Use RP in policies to get specific

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Employee Placement in Range

Range MidpointMinimum Maximum

$20,000 $32,000$26,000

Range Midpoint:Range Minimum: Range Maximum:

Lower limit of a pay range/band. Pay for new or less experienced employees should be closer to minimum.

The midpoint identifies the proficiency point. Market

based ranges have a midpoint that aligns with the

target percentile in the market.

The upper limit of a pay range/band. Pay for more tenured employees or star

performers should be approaching this number.

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Employee Placement in Range

Range MidpointMinimum Maximum

$20,000 $32,000$26,000

Green-Circled Employees Red-Circled Employees

Employees that are paid below the minimum of the pay range.

Employees that are paid above the maximum of the pay range.

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Comparing Employee Pay to Ranges

Range MidpointMinimum Maximum

$20,000 $32,000$26,000

50% Penetration

33% 66% 100%0%

Range Penetration:

A percentage that shows an employee’s position in the range. The percentage shows a relative comparison to the minimum of the range.

= (Employee Pay – Min) / (Max – Min)

Range Penetration = 0%Employee’s pay is at the minimum

Range Penetration = 50%Employee’s pay is at the midpoint

Range Penetration =100%Employee’s pay is at the maximum

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Deviating from the structure

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Why?

• Paying above and below ranges

• For hot jobs

• For differentials or temporary responsibilities

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How?

• Pay to market, +/- by experience or performance

• Set the range, but adjust ranges quarterly (up and down)

• Pay a market premium over the existing range within structure

• Pay a differential on top of the base pay - can easily be removed if the conditions change

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Immediate Actions

Gather information about your jobs

Talk with managers and executives

Obtain accurate market data for your positions

Identify unique organizational situations

Determine organization capacity for building structure

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PayScale Delivers Where Other Compensation Providers Fall Short

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Visit our blog: www.payscale.com/compensation-today

Join our Group on LinkedIn: Compensation Today: HR Best Practices

Jennifer Ferris, CCPSr. Compensation Professional

Paige Hanley, CCPSr. Compensation Professional

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