How To Benchmark Compensation And Set Salary Ranges


How To Benchmark Compensation And Set Salary Ranges
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When it comes to benchmarking compensation for employees, organizations should consider that not all salary sources are created equal. The fact of the matter is that there are an abundance of free salary resources online, which means current and potential employees of your organization have more information than ever when it comes to the market rate of a given position. If you’re looking to attract (and retain) top talent, it’s important to be aware of what the market is currently paying for certain skills so you can develop reasonable salary ranges for those positions. Additionally, being able to set salary ranges the right way will give you the foundation you need to create a compensation strategy for your organization that will set you up for long-term success. In this ebook, we’ll do a deep dive on topics related to benchmarking compensation and setting salary ranges, including:

How To Select The Right Salary Sources For BenchmarkingA crucial step to compensation benchmarking is building an up-to-date list of salary ranges for your job roles. However, you have to be particular about the types of salary sources you decide to use for this. When considering a salary data source, look for data that is specific to your industry, location, and size of your organization. The most common data sources we will go over in this whitepaper include:

  • Published and Traditional Salary Surveys: These come from the government, associations or consulting firms and offer a broad perspective, though they may not be entirely up-to-date or match your organization’s structure, location or size.
  • Online Salary Data Sources and Compensation Management Software: There are now online resources that offer self-reported salary data from employees. These sources are very timely, easy-to-use and more cost effective than traditional sources. PayScale is an example of a provider of online salary data and salary software.
  • Custom Salary Surveys: Several firms are available to custom design a survey just for your business.These types of surveys are often very accurate and very expensive.


How To Calculate Pay Grades and Salary RangesPay grades are used to group jobs that have approximately the same relative internal worth; in other words, all jobs within a particular grade are paid the same rate or within the same pay range. The number of pay grades can vary based on a few factors, including:

  • Size of your organization
  • Vertical distance between the highest and lowest level jobs
  • How finely your organization defines jobs and differentiates between them
  • Pay increase and promotion policy of your organization


Once you have figured out your pay grades, you can begin to set salary ranges for each pay grade. In order to determine salary ranges, you should be able to calculate the following:

  • Calculate the midpoint of your salary ranges: The first step to creating a pay range is finding its midpoint. The market midpoint is the median value of the aged, weighted market data for the position or positions. It is useful to find because it will eventually help you set your minimum and maximum salaries for a particular pay range.
  • Calculate the range spread of your salary ranges: The spread between the minimum and maximum salaries in a pay range will depend on many variables within your organization and your compensation policy and practices. Generally, pay spreads are narrower for lower-level jobs, and wider for higher-level jobs.
  • Calculate the minimum and maximum pay ranges: The final step to creating a salary range is determining the minimum and maximum for the range. After you calculate the midpoint for the salary range you’ll be able to complete this final step.


For a more detailed explanation on benchmarking comp and setting salary ranges, download the full ebook.