In today’s changing workforce, having a clearly defined career path is becoming critical for attracting and retaining top talent. Setting pay ranges and grades can give you a competitive advantage in an ever-changing market by enabling clear job progression as well as competitive pay. So how can you set your pay ranges just right? Join PayScale’s compensation experts as they show you how to build ranges from a market-centered midpoint, and how to use market data to update or create market-based pay ranges. Recording: https://www.humanresourcestoday.com/webinar-series/how-to-build-pay-grades-and-set-salary-ranges/

1. Presentation and certification info will be
sent following this webinar.

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Agenda
Why 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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4. 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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5. Why not?
• Small number of jobs
• Quick-moving jobs
• Typical organization
• Just the facts!
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6. Requirements
• Develop compensation
philosophy & strategy
• Know your jobs
• Conduct market analysis
• Know organizational priorities
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7. • Pay Schedules
• Pay Grades
• Pay Ranges
Pay Structure Elements
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8. Building Structure
Step 1: Identify Pay Schedules
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9. 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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10. 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…

11. Building Structure
Step 2: Determine Pay Grades
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12. Determine Pay Grades
Number 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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13. Building Structure
Step 3: Develop Ranges
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14. 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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15. Considerations
Range spread at base vs top of structure
Overlap between pay ranges
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16. Building Structure
Step 4: Assign grades to positions
and adjust for internal alignment
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17. Align positions to structure by matching
market value with closest range midpoint
Assign Grades to Positions
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18. 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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19. Example

20. How do you use
pay ranges?
• Understand employee
placement in range
• Develop guidelines or policies
• Develop processes
• Train your managers
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21. Understanding Range
Penetration (RP)
RP = (EE Pay – Range Min) / (Range Max - Range
Min)
• Indicator of how employee is positioned in
the range
• Use RP in policies to get specific
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22. 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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23. 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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24. 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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25. Deviating from
the structure
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26. Why?
• Paying above and below
ranges
• For hot jobs
• For differentials or temporary
responsibilities
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27. 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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28. 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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29. PayScale Delivers Where Other Compensation Providers Fall Short
PayScale leads the world in compensation knowledge with the freshest and
most detailed data from over 40 million salary profiles. More than 3000
organizations use PayScale’s software and intelligence to get the greatest
return on their talent. Smart businesses use PayScale Insight to recruit, retain
and motivate their people.
Visit our blog: www.payscale.com/compensation-today
Join our Group on LinkedIn: Compensation Today: HR Best Practices
Jennifer Ferris, CCP
Sr. Compensation Professional
Paige Hanley, CCP
Sr. Compensation Professional
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