Building Salary Ranges for Beginners, Part 1


“What’s the typical salary range for an administrative assistant?” Talk about a loaded question! Here at PayScale, we work with a lot of companies who are trying to determine typical salary ranges for their jobs. What are the signs that your organization needs a salary range overhaul?

“Typical” is a tricky word because it implies a standard salary range can be applied to a single job across many companies. The truth is there is no one-size-fits-all range that will make sense for every business and in every market. Rather, there is a standard approach used by many companies to build out salary ranges that are competitive in today’s market.

When to Consider Creating Salary Ranges

Not all companies want or feel ready for formal salary ranges. As an HR Professional, it is your job to identify when a compensation plan is needed and, more importantly, to educate your leadership team that creating pay ranges is good for the business.

3 Signs it’s Time for a Formal Compensation Strategy

How do you know when it’s time? I often advise my PayScale clients that the sooner they establish a compensation plan, as well as policies around how the plan will be administered, the better off the company will be in the long run. That said, it can be difficult to obtain leadership approval on developing ranges without any impetus for change. Therefore, keep an eye out for the following situations to occur, as they usually signal it’s time to start formalizing pay practices at your company.

  1. A top performer comes to you with a “ransom” offer from a competitor.
  2. A manager advocates paying a new hire $10,000 above the market rate for a job because no candidate will accept the amount they’re offering.
  3. Several employees complain to HR about how they’re paid relative to another group/department.

Each situation is a red flag to HR that a formal compensation plan is needed. Establishing pay ranges helps ensure external competitiveness as well as internal equity. And, when implemented well, a compensation plan can help improve recruitment, retention, and employee satisfaction. How? Let’s walk through the typical approach to building salary ranges. 

Choosing the Right Salary Market Data to Fit Your Compensation Philosophy

Now that you’ve determined you need to build salary ranges, the first step is to anchor your ranges to salary market data. Data is the core of any legitimate compensation plan – it ensures that employees are paid fairly, makes conversations about employee pay easy and comfortable, and of course, protects your company from legal action.

Remember: The data you choose should reflect your compensation philosophy (how competitive you want to pay employees) and your compensation strategy (where you compete for talent). 

Once you’ve established which market you compete in for your talent (industry, company size, and location) and at what point in the market you wish to position the company (meet, lead, or lag), then it’s time to select a data source.

Market Data Sources

Selecting a source (or sources) for your market data is an important, but often confusing, process. There are three primary sources for market data and each have their own set of benefits and drawbacks. When making your selection(s), consider what type of company you are as well as your available budget for conducting a market study.

Published, Traditional Surveys: Provided by the government, professional associations, and/or consulting firms

Pros: Depending on the type of company you are, data from Professional Associations that service your industry might be helpful, particularly if you hire specialized talent from a niche industry. Consulting firms gather salary information from Fortune 500 companies in large metro areas, so if your company is positioned similarly, you may consider using this type of data. Government data from the Bureau of Labor Statistics (BLS) provides a broad perspective on market conditions.

Cons: It can take up to a year (or more) to receive results from these sources, which means the data will be outdated by the time it reaches you. Often the firm conducting the study will ask you to provide your data in order to receive a discount on the survey results, which may save you money but could cost you a considerable amount of time as you will need to gather and submit your information first. Results are often delivered in a published binder, CD/ROM, or excel file, which can make it challenging to analyze the data. Consulting firms typically survey large, well-established companies so the data tends to skew high and may not be applicable to your company. And Professional Association surveys typically have a small sample size of participating businesses.

Internet Surveys: Online resources that offer data at the click of a button

Pros: These sources are very timely, can be easy to use, and are often a good value compared to traditional sources. A leading source for salary information is PayScale, which gives you access to real-time data and surveys millions of respondents so the information itself is a highly accurate representation of the market.

Cons: Depending on the online vendor, determining where they source their data can be difficult. Some online vendors simply buy traditional salary data and then average that information together to generate report. As a result, it is difficult for both vendor and user to discern exactly where the data came from. PayScale’s best practice is to go directly to the source (employees) to gather salary information. We pride ourselves on report transparency, so you always know where your data is coming from.

Custom Surveys: Some firms offer to conduct custom market surveys for your business

Pros: With this option, the firm will survey competitors of your choice for their salary data and provide the aggregated results to you. These types of surveys are often very accurate.

Cons: Custom surveys are usually the most expensive market data option. It can also be a lengthy process for the firm to collect and report back on the data they receive. And, depending on the companies you wish to survey, you may struggle with participation.

Come back next week as we continue to talk about salary ranges and offer expert ideas for building salary ranges, in Part 2 of this information packed series! 

Want to get the most from your salary ranges for a better, more engaged workforce and a balanced budget? Find out how real-time salary data can impact your business with a free demo of PayScale software. Request one now! 

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13 Comments on "Building Salary Ranges for Beginners, Part 1"

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Chris
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Hey Jenni! Good article. We’ve done some preliminary work with Jenna Running at your office, but haven’t engaged Payscale yet because of some upcoming changes. However, that doesn’t stop the need for us to keep moving forward with our comp strategy. My main concern with our strategy is that our sales and commission based employees (about half of our workforce) are making 2 to 3 times more than our admin ppl. Also, our Sales VPs are making 3 to 4 times what non-sales VPs are making. This is causing some disgruntled VPs (if the avg admin employee knew what the… Read more »
Jane
Guest

Chris – we have a very similar situation here.

Jenni help!

Shaun
Guest

Hello Jenni, I also found the article useful. In the past 12 months, I’ve had to address 2 of the 3 signs that it’s “time for a formal compensation strategy.” Thanks for the information. I look forward to reading future articles.

Tim Donnan
Guest

interested

Agnes
Guest

This is very useful in our current situation

Mohit
Guest

Hi Chris

Hi Jenni, Thanks for sharing the wonderful article.

Chris, You may present market salary data to your CEO on Sales jobs, also you may put FSI or SSI rather then adding to fixed cost,(if incentives are not properly planned for sales people)

Mohit

anwar
Guest

informative and useful for those who tend to create salary structure for the first time and also for those who join the company to commence their career.

Cindy
Guest

Thanks Jenni for this article. I’m looking forward to part 2.

mm
Guest
Great question Chris! Part of what we know in working with organizations like yours is that you can’t always use the same strategy for every segment of your workforce. I think the best thing you and the leadership team can do is to get real about the situation. Regardless of whether their compensation is reflected in base pay or incentive payouts, it’s true that sales employees usually make 2-3 times more than the rest of the employee population. So first things first – consider what you’re trying to accomplish as a business and how the sales team helps you achieve… Read more »
Cindy
Guest

Thanks Jenni for this article. I’m looking forward to part 2.

Alison Avalos
Guest

Hi Jenni! Thanks for your reference to WorldatWork’s recommendation on best practices for sourcing salary data! Just a quick clarification that is probably just a typo…WorldatWork recommends getting salary information from employers (not employees).

Thanks again for the shout-out!

Septian
Guest

Looking forward to Part II!

mm
Guest
Hi Alison, So glad to see you reading our blog. We are huge fans of World at Work. We apologize if we misinterpreted your position on salary data, and have subsequently removed the reference to your company. That being said, we take a different view. PayScale believes passionately that employee submitted salary data is the gold standard. We believe this because: 1) It’s direct from the source – employees know their job better than their managers, or really, the HR assistant whose job it is to collect all this information. 2) It’s real time – we are crowdsourcing data around… Read more »
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