Maximums are not very important, in my opinion. A pay grade range maximum ("Max") is useful as a control point beyond which you require extra levels to sign off for approvals. But minimums are more vital and easier to justify in practical terms.
A Max limit typically exists as a "bright line" beyond which pay should not go for this job this year. Exceeding a Max should require extraordinary authorizations for specific reasons. The maximum is theoretically supposed to be the highest figure authorized for anyone in a pay grade. Maximums normally increase when the whole pay structure rises incrementally in line with general competitive market replacement costs, although little justification is usually offered for the absolute value of maximums.
Almost every grade range maximum I've ever seen was completely arbitrary, based on some cockamamie percentage originating from the nether regions of lemming-land or plucked from the personal preference of the most powerful executive around. The existence of an official formal maximum ceiling is simply a management convenience. It allows a boss to take refuge behind a policy that says “no more than this” when the boss does not want to pay that much anyway. When bosses want to grant more money than the compensation policy allows, they can usually find an easy way around the max limit.
I intensely dislike “maximums” because they relegate the compensation professionals into becoming feckless comp cops enforcing capricious nonsensical rules. Those firm rules become squishy and are ignored whenever it pleases top management: they know there is no real reason to comply when they choose not to. In general, the pay budget usually belongs to the department head, not to the compensation guardian, and line executives really will get whatever they want if operations truly do require it. Max limits just make helpless targets out of compensation staff who have better things to do than be trod into the mud under the heavy feet of those with more power who can ignore an arbitrary guideline.
Salary range limits and pay grade maximum parameters are problematic because they usually are not based on realistic metrics. No one knows exactly why they are there when they can be evaded so easily. However, they remain popular with bean-counters who love uniform rules because they impose some facsimile of fiscal discipline. Engineers also like parameters because they imply that boundary limits can be precisely computed. I have no problem with a “max” that is simply a guideline trigger point for additional approval signatures to confirm that the sponsor has justified an extraordinary number. But I have no patience with those who pretend that the “max” is some kind of sacred rule that permits no exception. My opinion would be different if the external competitive market surveys or internal equity considerations supplied credible support for the maximum limit point: for instance, if it defined the 95th %ile of all occupational incumbents at peer enterprise; but that rarely occurs.
Minimums are far more vital for organizational pay focus than maximums. Without realistic minimum entry rates that permit the efficient acquisition, retention and engagement of competent workers, the enterprise will flounder. Market clearing rates are frequently surveyed and easily confirmed by employment recruiting experience, too.
Those earning near the minimums deserve more attention because the underpaid are the most vulnerable to disengagement, disillusionment and job-hopping. On the other hand, incumbents nearing maximum limits by definition earn far more than normal. The overpaid will find it very difficult if not impossible to find equal pay for a comparable position at another firm. Those approaching grade range ceilings are deeply invested in their employer and the least likely to leave. In fact, extreme measures may become necessary to dislodge them from their comfortable burrows.
Perhaps you have had other experiences. If so, please share them so we can discuss how and why pay practices like this can be improved.
E. James (Jim) Brennan is an independent consultant with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After HR corporate jobs in chemical/pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until 2015. A prolific writer (author of the Performance Management Workbook) and speaker, he gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service. Jim also serves on the Advisory Board of the Compensation and Benefits Review.
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