Author Archives: David Weaver

The HR Professional’s Easy 4-Step Guide to Creating Salary Ranges

Salary ranges. The phrase alone is like nails on a chalkboard for most human resources professionals.

When we think of salary ranges, we envision an unnecessary administrative burden, we imagine wasting our time on a useless project for management, and we think of…math (cue thunder and lightning).

So why bother with salary ranges in the first place?

According to a recent Compensation Planning Survey, nearly 70% of participants have formal salary ranges. If that many companies use salary ranges, they must have some utility, right?

The truth is, pain in the butt or not, salary ranges are one of your best tools as an HR professional to accomplish one of your most important job duties:

Control Labor Costs

Let’s start by thinking about salary ranges from the perspective of external competitiveness.

By creating salary ranges for every job in your company, you determine each job’s value. A salary range explicitly states the ceiling (range maximum) and floor (range minimum) for each position.

Internally, salary ranges provide an opportunity to recognize varied levels of employee performance or experience. How does it do that? By allowing your company to pay employees at different points in the range. For example, high performers may be paid in the upper third of the range, lower or less experienced performers may be paid in the lower third.

That’s why salary ranges are important. How do you actually create a salary range?

By following a 4-step process:

1. Develop Grades

Start by grouping together jobs with similar internal or external worth. An internal job evaluation tool, such as a point factor system, is one way to determine a job’s worth. However, most organizations use external market pricing to establish each job’s marketplace value. I recommend using an external market pricing system where you assign each job a grade based on your market analysis.

2. Set the Minimum, Midpoint, and Maximum

Determine each job’s midpoint based on your organization’s pay policy (to match, lead, or lag the market) and by conducting a competitive market analysis for a group of jobs in each grade.

Once you compile and average the market rates, you can establish the midpoint of each grade. The midpoint will give you an approximation of what your competition pays on average (in other words, the job’s external value).

Range spreads (which is the range maximum divided by minimum) will vary based on the level of the job. Jobs with greater decision making, and with less promotion possibility, tend to have wider ranges.

3. Set Range Overlap

Midpoint differentials and range spreads control the amount of overlap between salary ranges. A low degree of overlap and small midpoint differentials equates to small differences in the value of jobs and smaller promotional increases. As jobs become more challenging and move further up the hierarchy, your ranges should be spread wider and the midpoint differentials should be greater.

As a rule of thumb, midpoint differentials tend to start at about 7.5% and gradually increase to as much as 15%.

4. Connect Your Salary Structure to Your Performance Management System

To reinforce the fact that your company pays for performance, most salary ranges will be split based on the number of performance ratings.

For example, if your organization has 4 ratings, your ranges will be broken into quartiles. If you have 5 ratings you’d split into quintiles.

This type of compensation program design allows you to use other tools such as merit or promotion matrices to assist your efforts in controlling labor cost and encouraging pay for performance.

Should I Use Unified or Multiple Pay Structures?

Once you develop your salary ranges using that 4-step process, you have to decide if you want to use unified or multiple pay structures.

If your goal is to keep administration to a minimum and implement the least number of salary ranges, consider one unified salary structure for the entire organization.

However, if your organization has a compensation philosophy that values functions or disciplines differently, (such as engineering or information technology) then you may need to implement separate pay structures for those groups.

Another X-factor to consider: having employees in the same role in different geographic labor markets may require you to implement multiple pay structures.

Does Broadbanding Really Work?

Broadbanding reduces the number of salary ranges, for example to 4 or 5 “bands.” At first glance, you seem to be simplifying your administration when you implement broadbanding techniques, with wider ranges and fewer job grades.

In my experience, broadbanding doesn’t actually reduce administration or simplify communication to managers and employees. To control labor cost in a broadbanded structure, you may have to market price every job, and create a pay zone around each, to prevent salaries from creeping up through the wide band.

That’s a lot of work to avoid a little administration work.

Secret Salary Ranges

It’s a controversial topic:

Should you communicate your salary ranges to managers and employees?

If you value open communication, are confident in your analysis, and can defend the competitiveness of your salary ranges, then consider training managers in the proper use of pay structures and communicating salary ranges to employees.

Your Work Isn’t Over Yet…

Once you’ve established your salary ranges, it’s important to maintain them annually. According to our survey, 80% of participants review their salary ranges on a yearly basis.

Review may mean analyzing salary structure trend data and moving ranges accordingly, or performing a comprehensive market analysis to determine more accurately how to adjust ranges.

Whichever process you choose, remember: salary ranges are a key tool in administering your compensation program. Keeping them up-to-date and competitive is critical to your business.

Note: If you enjoyed this article, check out my new bestselling HR book Pay Matters: The Art and Science of Employee Compensation available now on Amazon.

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© 2020 David Weaver. All rights reserved.

The Impact of Demographics and Technology on HR

Currently, unemployment is at a near twenty-year low. There are more jobs available than workers looking for them. The big question – is this a short-term or a long -term issue? If your organization is experiencing this now, how are you addressing it? What is your strategy for addressing it in the future?

There is some indication that we could be at the beginning of a major economic upheaval that might impact the work environment for several decades. Bain and Company Macro Trends Group provides a comprehensive overview of two major forces that will impact the work environment over the next ten to twenty years. The two forces are demographics and technology, and their collision has the potential to trigger economic disruption more severe than we have experienced during the last sixty years. These forces are already posing challenges, risks and opportunities for organizations and Human Resources practitioners. Over the next decade, Human Resources and the organizations they support will need to develop effective strategies and programs to counteract the collision of demographics and technology.

Demographically, the era of an adequate labor supply is ending. According to the Bureau of Labor Statistics, the largest labor force growth took place during the 1970s when the labor force grew by 2.6%. Since then, each ten-year period has resulted in a declining labor force growth rate. Over the past ten years the labor force has grown only 0.7%, and during the next ten years it is projected to grow by only 0.4%.

The shrinking labor pool might be good news for workers. The short supply of labor, coupled with a high demand for workers, will most likely increase their market value over the short-term. The longer-term pressing challenge for organizations will be attracting and retaining staff that have the skills required to fill critical organizational roles. Highly skilled staff are already scarce and will continue to be scarce; therefore, it will become an added challenge to attract and retain them. The organization and HR will need to enhance existing incentives with competitive compensation and benefit packages, flexible work arrangements, remote work options, more attractive organizational cultures, and a higher purpose for work.

During this period, new automation technologies will continue to augment and impact many job-focused organizations. Some jobs will evolve into role-focused positions, continually changing to do what needs to be accomplished. Other jobs will be augmented with technology, providing incumbents the opportunity to devote more time to critical non-transactional tasks.

As labor becomes scarcer, organizations will need to invest in labor-saving technologies. New technologies and innovation will generate productivity growth as automation replaces and enhances human labor. Over the next decade, the rapid spread of automation will collide with the slowing labor force growth. While higher productivity through automation is generally positive, it can be highly disruptive and will impact employment. During this period new job categories and resulting career tracks will be added to support automation advances and alleviate some of the job losses.

It will be incumbent on Human Resources to anticipate the impact of automation on the workforce and implement a comprehensive program to upskill and reskill employees. The program will need to focus on reskilling employees in declining jobs, upskilling the workforce to adapt to future implementation to technology, and attracting and retaining new talent to fill critical future roles. To increase their allure, employers need to enhance existing incentives with monetary benefits, an attractive culture, flexible work arrangements and a higher sense of purpose in their work.

During this disruptive period Human Resources organizations must understand the broad forces at work – demographics and automation – to be prepared to guide and assist Leadership in adjusting to the disruption. How can HR begin to anticipate disruptive change? They must ask the question: Are the initiatives to improve efficiency and productivity making the organization resistant to change? Any action that improves efficiency, productivity, and resilience to change is a prudent move.

Getting there will be the challenge, there is no magic formula for managing a significant macroeconomic upheaval. There are many steps organizations can take to position themselves to ride out the change. The first and most important step is to build resilience into the organization. Organizations that can absorb shocks and change course quickly and smoothly will have a chance of thriving throughout the turbulent 2020s and beyond. Human Resources needs to be prepared to provide leadership during this transformation.

Welcome to the CHRG Blog

Welcome, reader, to CHRG’s new blog! Here, you’ll find helpful, thought-provoking content written by highly-experienced human resources practitioners, touching on topics related to compensation, benefits, human resources, and general business.

While we are happy to have a platform to share our knowledge with other human resources professionals, we don’t want our voices to be the only ones heard. Our vision is for this blog to be an interactive environment for people to share their experiences for the greater good of the HR community. When it comes to leaving comments, don’t be shy — we would love to hear your thoughts!