Mykkah Herner, MA, CCPManager of Insight Expert Services at PayScale
As the economy continues to slowly recover, and organizations are getting more specific about their compensation philosophies, compensation plans are both streamlining and becoming more complex. Increasingly organizations are using pay schedules as a way of maintaining internal equity, while differentiating pay by a number of factors. What is a pay schedule and when might you want to use it?
Defining Pay Schedules
A Pay Schedule is a group of grades and ranges. Most commonly, pay schedules are used to differentiate across geographies to ensure appropriate pay relative to local markets while also maintaining internal alignment of positions
For example, pay for a software developer in Seattle is different from Austin, San Francisco, Iowa City, or Orlando. If you try to pay Iowa City rates in Seattle, you’ll have a hard time attracting and retaining top talent. But, if you pay Seattle rates in Iowa City, you’ll likely be overpaying by quite a bit. At the same time, you want to make sure your software developers’ pay shows up below your senior software developer and software development manager, but perhaps above a help desk technician. Pay Schedules help you maintain the appropriate hierarchies and at the same time the appropriate pay differentials depending on location.
How do you develop schedules?
- Determine the market value for your positions in all your locations. This will include both the cost of living and the cost of labor or demand difference between the locations.
- Determine the percent difference in pay *for your positions* between the locations. If you need help, PayScale’s Market Differential Analysis tool will do this with a click of a button.
- If you have a lot of labor markets, group them together in 5% increments. Why 5%? That seems to be an amount not big enough to lose employee attention, and also to not break the bank. Some organizations will group in 7-8% increments. Grouping them allows ease of administration, and also lets you to group like labor markets together (size, volume, urban or rural, etc).
- Develop your multiple schedules by adjusting your ranges up/down by the appropriate percentage points.
Ultimately, you’ll likely come up with something like this, but dialed in for your specific organization:
Other Schedule Uses
There are some other common cases when organizations will use multiple schedules.
Some organizations will place hourly and salary positions on different schedules. In addition to being able to reflect the ranges in the appropriate values (hourly rates for non-exempt positions, etc), splitting exempt and non onto different schedules gives you the ability to create a narrower structure for hourly jobs and a broader structure for salary jobs.
Differentiate very different jobs:
- Schools will often place faculty and staff on different schedules as comparing the two is often like comparing apples and oranges.
- Companies with a lot of very technical jobs, Engineers or an IT group for example, will often place them on a separate schedule.
- Some organizations will create a separate schedule for their executive staff – sometimes they will include ranges for that staff, sometimes not.
- Hospitals and clinics will often place their doctors on a separate schedule from the rest of the organization.
However you decide to set up your compensation plan, consider whether using multiple schedules will give you that extra amount of leverage you need to hit your target budget and retain top talent.