David Weaver, President, Compensation and HR Group.
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Several states and cities are requiring that employers disclose a good faith salary range to applicants and employees including California, New York City, Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington. There are many other states considering enacting similar laws, so developing salary ranges for the positions in your organization could go a long way toward being compliant and remaining competitive.
Managers are encouraged to communicate with each employee about their respective salary ranges. This is an opportunity to be transparent about pay and the compensation program at your organization.
Here are some key points to be sure to mention about your salary ranges:
• A salary range refers to the minimum, midpoint and maximum salary for all positions within a job level and reflects the external pay for similar jobs.
• The salary ranges are determined by considering the market pay for the jobs at each level, the responsibilities and skills required for each job and the organization’s current pay levels.
• The minimum salary represents the lowest pay for jobs that fall within that range. To be considered within the market range, a salary is at or above the minimum of the range.
• There is no set timeframe for moving through a salary range. The best way to move through a range is by displaying strong performance that results in salary increases. Employees are also encouraged to identify opportunities to grow their skill sets and take on new and additional responsibilities, which may result in adjustments in pay within a pay range or in the employee moving to a level with a higher salary range.
Here is an example of what to communicate to your employees using a sample salary range:
• Annual minimum: $33,000
• Annual midpoint: $39,000
• Annual maximum: $45,000
Let's say one of your employees is currently making $38,500 annually. Point out to the employee where their salary is placed in the salary range. In this example, the employee is paid very close to the salary range midpoint (current pay is 98.7% of the midpoint), which means they are paid competitively as compared to the rate of pay in the external market.
Since salaries externally are consistently increasing, your organization’s salary ranges should be adjusted upward based on that movement each year.
While you are communicating salary ranges to employees, there are several other compensation programs that you can mention including:
• Your organization’s compensation philosophy. This statement explains where your organization wants to position its pay to the competitive market and how it will achieve that strategy, for example, by paying employees for their performance.
• Salary increase policy and timing of those increases. Let employees know how salary increases will be determined and what cadence will be used in delivering those increases.
• Variable pay plans. If your organization utilizes bonus plans or long-term incentive programs like stock options, explain the business objectives, plan targets and how the programs work.
The key to communicating salary ranges or any other compensation program is to be open and honest about the design and purpose of the plan. Salary ranges are a significant tool in administering your compensation program. Keeping them up-to-date and competitive is critical to your business.
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