Do You Know What Your Salary Ranges Mean?

I've been worrying about salary ranges lately. It's not an OCD fixation but it may be an existential crisis. I keep thinking the tremors from the recession may have damaged our Compensation foundation, but no one has taken the flashlight and gotten under the house to find out.

Here's what I mean. Salary ranges communicate the deal we offer employees.

• Opportunity to earn more as we perform and learn.
• Recognition for skill development and job mastery.
• Faster earnings growth for better performance.
• Increased status for having earned repeated high performance awards.

Salary ranges are the finish work of our compensation structure. But can we claim they still perform the way they have in the past? I think that salary ranges in most companies could benefit from an inspection -- and that employees may have cottoned on to the problems already. 

Below is the industry-wide model explaining what position-in-range means. We've all agreed that the employees' current pay, in relation to the market, should represent their level of mastery of their job through their position-in-range.

 

In the past most ranges delivered movement to the midpoint in three to five years, as performance warranted.

Here we are in January 2013. No matter how well behaved you and your managers have been about hiring into the first third -- or not -- most employees still expect to be paid at a point in the range that represents their demonstrated level of ability.

But given five years of lean merit budgets and limited distribution of increases, can we claim salary ranges still work this way? And if they don't, what does position-in-range mean in 2013? 

Can I still be hired in the first third of the range and expect my increases to land me in the second third of the range once I've developed a full skill set? Or will I have to wait in a part of the range that undervalues my professional growth and contribution over time? If I have to wait, how long will it go on? And how should I feel about recognition for my level of contribution?

I think we need to know the answers to these questions, and employees deserve our guidance if the ground has shifted under their feet. What if your fundamental compensation philosophy really has changed without you knowing it? To figure it out, organize your data and do the analysis.You won't know for sure until you replace the batteries in your flashlight, sort through your data and  check out your foundation.

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret is Deputy Director of the International Association of Business Communicators (IABC) Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

Comments

[Jacque Vilet]

Ah..... what good points. I am drawn to Ann's post Friday

http://www.compensationcafe.com/2013/01/tinker-tailor-experiential-learner.html

and the part of it that says there is "overreliance on formal education, research and what the "experts" teach us -- and underreliance on what we learn through tinkering, tailoring, practice and apprenticeship."

I think that definitions of where in the salary range a person should fall are antiquated at best ---- and in my humble opinion --- not in step with business in the real world. Let's face it. Isn't this just one more way that HR and compensation put up barriers in the organization? Isn't this just another of our profession's ignoring what is needed in the real world?

My father had a saying: "Them that can, does ---- them that can't, teaches".

Again, my humble opinion. Theory is fine but let's put it in it's rightly place. As a foundation ---- something to build off of --- not to be adhered to no matter what.

[Margaret O'Hanlon]

Gee, Jacque, I think I disagree with you, but not sure. I'm not sure if your thoughts were addressing the concept of a salary range, per se, or the description of how one moves through the salary range and what the criteria might be for that.

But here's where I am coming from in the overall. My own experience is that this model has been used in my real world consistently and with a great deal of satisfaction. Small companies to Fortune 100s. It even works when people are hired into the range higher than they should be, because it defines the level of expectation for the outcomes of their work.

I think people who believe that their compensation plan somehow influences their ability or commitment to learn on the job (or that it puts obstacles in their way) are really mixing apples and oranges.

There is so much to learn in business right now that learning is just part of the definition of work. So learning isn't optional, it's the job.

Experts might teach us, research might teach us (or not) but 40 or more years of study on Adult Learning indicates that adults learn best from experience. (We learn by doing.)

In fact, the salary range model in my blog article has meaning because it is based on a learning by doing model. It assumes the employee is given guidance to begin with, moving on to independent expertise and then the ability to act as a guide for others including newbies. So learning = the job.

In a practical application of the model, employees who are being paid above market rate are expected to be continuing to learn on the job -- and to influence what others learn. That's why they are getting the big bucks.

Alternately, those paid high in the range have come to a point where their work doesn't qualify them for their salary, and HR eventually red circles them (or something more drastic).

[Jacque Vilet]

I am all for learning in the real world. And I'm all for learning by doing. But some/much of what we learn in compensation theory is just that --- theory. Of much more value is what works --what we learn on the job/in the real world of business, experimentation, etc.

We can't prove that salary ranges actually reflect market. Maybe, but the pace is too rapid these days for ranges to be relevant from month to month. If true, then range position is even less accurate. Therefore, I would be embarrassed to try to explain range position to an employee and how it affects him/her. It sounds so "textbook".

If someone is paid high in the range or above the salary max and is doing a "stellar" job but is not qualified to be promoted ---- then to freeze salary is a big mistake I think. He/she will likely leave the company.

What does that accomplish? In my opinion that is just a case of staying true to a compensation principle at the expense of losing a great performer/contributor.

I think we have enough to learn in the real world in business. And that is where I think we ought to concentrate our attention.

Maybe I'm all wet but that's what learning by doing has done for me.

[E. James (Jim) Brennan]

Really haven't seen much rapid change in overall American pay trends over the last years, but it is that very sluggish normative change that has created pressure on the conventional systems that assume conditions that no longer exist. Slow growth also has made the outlier cases extremely difficult to handle.

Folks do not proceed through the normal pay program the way they "should." Hope my old article on that topic appears soon.

Since increases compound when applied to base salary, most rational remuneration schemes establish a limit on pay growth in the same job. The salary growth of people who fail to qualify for promotion will eventually be constrained, one way or another. For example, you don't see too many janitors making $150,000. Although people may have infinite values, jobs don't.

[E. James (Jim) Brennan]

The above-referenced revised version of my "old article" appeared here on 1/24/13. Hopefully, it offers a solution to the classic issue that Margaret's timely article identified.

And no..., we didn't conspire or compare notes in advance. Great minds just run in the the same channels! (Don't I wish!)