How to Build Fair Pay Grades and Salary Ranges

When people are looking for their next career move, compensation is a top consideration. Your company should have a plan to figure out equitable, fair pay for all of your employees. Being transparent about your company’s salary ranges is beneficial for you and your employees. It can reduce turnover, your employees will work harder, and transparency protects them against wage discrimination.

Your employees will no doubt discuss their pay with each other (which is completely legal). Being transparent about compensation will eliminate any suspicions that they’re being underpaid (a common assumption when pay is kept a secret).

In this article, we cover:

• What it means to have fair and equitable compensation
• How to make a company-wide plan
• Where to find compensation data
• How to establish your pay grades and ranges.

What does it mean to have equitable and fair pay?

It’s essential to understand what it means to provide fair pay in your organization because “fair” can be subjective. When it comes to pay, “fair compensation” means rewarding your employees according to their performance, skills, experience, and the industry and location in which they operate.

Fair compensation means rewarding employees based on their performance, skills, experience, industry and location.

The goal would be to create a plan to determine pay grades that consider all these variables while also accounting for compensating exceptional employees you want to retain.

Transparency is also crucial here, and making your pay grades more transparent can help your company reduce turnover: People who left their jobs this year saw their pay jump by nearly 7%. By being transparent and forthcoming about salary ranges, employees will know what to expect for their next raise or promotion internally. This may help them feel less compelled to look elsewhere.

Developing your plan for fair pay

Before creating a plan with concrete numbers and salary ranges, your compensation structure starts with answering these 3 questions:

• What is our underlying compensation philosophy?
• What are we looking to achieve?
• What is our budget?

Question 1: What is our underlying compensation philosophy?

This question explores your company’s position on pay. It also provides a framework for competitive total compensation packages and fair pay for employees. While your company’s philosophy will be uniquely yours, we strongly recommend adopting a Fair Pay philosophy. This simply means you pay people for their skills, experience, and performance, and pay remains unbiased of gender, age, religion, etc.

Question 2: What are we looking to achieve?

This question explores:

• Which skills does your organization need
• How will you prioritize your new hires
• What incentive strategies are required to drive intended outcomes among current employees

It helps to relate talent needs to your business goals. At Workest, we offer a step-by-step guide to help you with this, which includes ranking company goals based on priority. For example, suppose you operate in a business primarily driven by technological needs (i.e., web developers). In that case, you might consider having a higher budget for recruiting top development and engineering talent (one of the most major HR challenges of 2021).

Question 3: What is our budget?

This question explores how much your company can afford to pay each employee, including bonuses and raises and any other incentives.

Your budget helps define:

• The total number of people you can afford to put on the payroll
• The extent of and types of incentive strategies you can use
• Salary ranges for various positions you’re looking to fill
• The mix of total compensation (salary, benefits, and flexible benefits) you can provide to each worker
• The mix of worker types that are best to keep (contract, full time, part-time, etc.)

Look at competitors, market data, and benchmarks

Now that you’ve explored your company’s philosophy, goals, and budget, you’ll have to look at the market and various benchmarks to determine what your company’s pay grades and salary ranges should be.

Several tools offer real-world salaries, including Zenefits, LinkedIn, and Glassdoor. These benchmarking tools help you understand where your company’s wages should land based on title, location, and industry.

It’s hard for smaller companies to compete with larger firms when it comes to pay, but that doesn’t mean you’ll lose out on talent.

One important consideration is that smaller companies likely cannot compete with larger firms when it comes to pay, but that doesn’t necessarily mean you’ll lose out on talent. Post-pandemic, work is not just about compensation anymore. While equitable and fair pay will always remain a top consideration, people are also looking for:

• Empathetic companies
• Flexible work schedules
• Sought-after benefits

Develop job groupings and fair pay ranges

After looking at the market data for the jobs in your company, group them, and assign them pay ranges. For example, if you are working with developers and project managers, you would group them (group A is developers, and group B is project managers) and then determine an appropriate salary range based on the level of responsibility within each group.

For example, in your group of developers, you might have junior, intermediate, and senior, and the range for that entire group is 50k-120k. So your junior might fall somewhere between 50k-70k, your intermediate between 70k-100k, and your senior between 100k-120k.

Determine when you’ll give raises and promotions

Both large and small companies should have a performance review process in place. Further, these performance reviews should be tracked and documented so that when annual raises are discussed, there is a fair paper trail for why someone will or won’t get a raise.

Be transparent about when your employees will be eligible for raises.

While you might have performance reviews 3 times a year, you likely won’t give raises that often, so it’s important to establish precisely when during the year your employees are eligible for a raise and the minimum time of employment before they’re eligible. This transparency is vital because if your company decides only to give raises in December and decides an employee needs to be in their position for at least 6 months, it’s clear to employees who started in July or later that they won’t be eligible for a raise.

Finally, after your fair pay grades and salary ranges are put in place, your company should:

• Communicate its policy around compensation
• Update the ranges accordingly as the market changes

As noted, it’s important to keep in mind that while smaller companies can’t always compete when it comes to pay, people also highly value companies with empathy, are looking for a work-life balance and growth opportunities.