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October 23, 2019


How to set a salary range.

Calculator and coins - salary

At the end of the day, employee pay and benefits are some of the most important things a manager does. Setting a fair and acceptable salary range for employees is vital to attracting talent to your organization, and making sure employees are happy with their situation. Wage is the number one thing that attracts employees to a job, or will make them turn down an offer or want to leave a company. Even if someone loves their job, they want to get paid for doing it. 

If you’re preparing to go into business management or HR, it’s vital that you’re prepared to deal with income and salaries as part of your duties. This is one of the areas that is crucial to get right, but can be complicated. 

There are many factors to consider when it comes to salary ranges. Managers need to consider their location, the education and experience needed, and the working conditions as they consider what to pay their employees.

So how do employers find out what is a fair wage and determine how it works within their budgets and organization? This guide will help business managers establish salaries for all their employees in the most productive way.

Evaluate jobs.

The first thing that business managers should do is write out each job position they have available, and the duties that will be associated with each job. This helps them get a look at exactly what things need to be done, and how each job will work to benefit the organization. This gives managers the chance to consider exactly how many jobs they need, the skills required, the role of each position, and an overview of where their wage budget will go.

Rank each of your jobs.

The next thing employers should do is rank the jobs and see how they compare to each other. Managers can compare the jobs based on the amount of experience needed, the duties they will perform, the skills needed, the number of direct reports, etc. Ranking similar positions gives a clear hierarchy and will help establish which salaries need to be higher or lower than others. It’s vital to ensure that workers are paid fairly in relation to other jobs, so you don’t have a job that requires a lot of education and experience on the same pay level as an entry-level position. Incorrectly ranking will make jobs be unappealing to those who are best qualified.


Do market research into salaries.

Business managers need to do their research so they know what other workers and job seekers in the industry are being paid. Websites like Payscale, Glassdoor, LinkedIn and are all helpful for managers who are looking to research compensation rates in their industry or area. 

It can also be valuable to talk to other people in the industry or niche to understand what is common or expected as far as wage rates. Potential recruits are absolutely going to be comparing you to other companies, so you should be comparing yourself as well. It’s also vital to understand how education and years of experience add to pay expectations. Higher education and longer in the workforce means people expect higher pay. And as years go on, inflation will cause workers to expect your pay to rise with the economy.

Establish company minimum and maximum salary ranges.

Business managers need to establish maximum and minimum pay rates. It’s vital to decide how much you have in your compensation budget for max salaries, and the minimum amount you’re willing to pay workers per year. Use your market research to determine what fair minimum and maximum pay rates will be for your organization.

It’s also important to understand what laws are for minimum pay and hours to make sure you’re compliant with regulations and requirements. All of these factors will help you decide your minimum and maximum, which will inform where your pay grades will fall.

Man holding thumbs up - setting salary range

Create pay grades.

Now that you have all the information you need, it’s time to create pay grades for your employees. The size of your organization will impact how many pay grades you need. For example, the federal government has 15 pay grades with a wide range. Smaller organizations may only need 3 or 4 pay grades and a smaller compensation range. Decide how many pay grades you need based on the job titles you have and how they compare.

You’ll want to create a minimum and maximum number within each pay grade. The maximum of one grade could overlap with the minimum of another, and vice versa. It’s recommended that each grade should have a 20-30% range from the midpoint. For example: Pay Grade One could have a low end of $20,000, a midpoint of $30,000 and a high point of $40,000. Pay Grade Two could have a low end of $40,000, a mid point of $55,000, and a high point of $70,000. A chart can help you be clear and certain about the pay grades you’ve created and the minimum and maximum limits you set. 

Adjust current pay to meet these standards.

After you’ve made your pay grade chart, look at how your current workers fair on the pay grades. There will likely need to be adjustments made to make sure employees are being compensated fairly. Adjusting up with a raise or bonus is great for morale and will help you make sure you attract and keep top talent in your organization. You should never adjust salaries down, as this is a huge issue for morale and can cause people to want to leave your company. 

If you’re a business student preparing for a future as a manager, it’s crucial to be prepared to deal with salaries as a major part of your job. This guide can help you establish competitive and fair salaries that will make your current employees want to stay, and attract new talent. 

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