Question

What are the advantages of establishing pay ranges, rather than specific pay levels, for each job. What are the drawbacks to this approach?

*250 words

Answer 1

A salary range is a part of a structured pay system in which pay is based on the educational and experiential requirements for a given job. The range includes a minimum pay level and a maximum pay level for a given job, and an employee's actual pay falls somewhere with that range. A 2009 Culpepper Pay Practices Survey showed 71 percent of organizations indicated they used salary ranges. There are several advantages to using a salary range.

Consistency
A salary range gives companies a system to pay employees consistently for the work they do in a given position. The range usually allows for differences in education, experience or performance. However, employees in the same type of job know they earn pay that is relatively similar to colleagues. This helps eliminate internal conflict and anger from employees who may feel slighted in companies that don't have constant salary ranges.

Flexibility
The benefit of having a range rather than a single, set pay is flexibility. As noted, you can pay slightly more or less for an employee based on his level of education, experience or performance. This gives companies an opportunity to offer a little more money to get an employee with a stronger background. In the same way, it allows them to potentially save on labor costs when hiring employees with limited backgrounds.

Budgeting
The ability to more effectively budget for labor costs is another advantage with a scheduled salary range. Human resources can analyze the number of jobs at each pay grade and get a reasonable estimate of total labor costs by job, department and organization. This makes it easier for leaders to assess current labor relative to need and to project future needs for certain jobs. Labor is usually one of the most expensive components of operating a business.

Competitive Analysis
Along with promoting internal equity and consistency, a structured salary range gives companies a better ability to compare with competing organizations. HR professionals can visit competitor websites or gather other resources to compare salary ranges. This is much more possible than trying to analyze pay when it is customized for each individual job or employee. If a company finds its pay range is below competitors, it can increase the minimum and maximum to attract better talent.