5 Steps to Setting the Perfect Salary Range
When it comes to setting salary ranges, business owners, chief financial officers (CFOs), and HR managers are overwhelmed with finding a magic number.
If you overpay, you’ll struggle to make payroll. If you underpay, you’ll be unable to hire and retain quality employees—especially in our current job market.
Salaries (67%) and benefits (63%) are the two most important factors people look for when browsing job ads or researching an organization.Glassdoor, 2020
So how do you show your team that you appreciate them and value their hard work without payroll devouring your company budget?
At Whirks, we’re like any other business: we understand the struggle of hiring and retaining a team of a-players, especially since the dawn of COVID-19. As a growing small business ourselves, we strive to help others learn from our experience and get one step better every day.
So roll up your sleeves, pull out your notebook, and dust off your calculator. Let’s dive into these four tips for setting salary ranges.
1. Define the Roles
First things first: ensure your position descriptions are current.
Do they accurately reflect the depth and breadth of the position? Do they outline who the candidate reports to and how their success is determined? Positions and responsibilities are going to evolve and shift as your business grows.
The Society for Human Resource Management recommends reviewing your overall salary structure every three to five years.
When setting your salary structure, decide if you want to lag, match, or lead in the current job market.
- Lag: You pay employees under the market and less than your competitors. Some employers can get away with this if they have a prolific brand that people want to work for simply because of the experience or environment (think zoos and amusement parks – cough, Carol Baskin).
- Match: You pay your employees the median market salary. Here’s where benefits and company culture come in handy. Generous PTO and a flexible schedule may be more important to post-pandemic workers, as you’ll read in a minute.
- Lead: You pay your employees above the market in order to attract talent away from competitors.
2. Benchmarking Salary Ranges
You’ve updated your descriptions, so now you can compare yours with those outside of your organization to determine the market rate for each position. This process is called salary benchmarking.
Benchmarking allows you to calculate the minimum, midpoint, and maximum salary for specific positions based on your research and create your own ranges. Minimums and maximums generally fall within 15-20% of the midpoint.
There are plenty of online resources that offer salary data. Some offer free data, and others charge for more detailed information.
These four websites are a great place to start your research:
- Salary.com (HR-reported data)
- Glassdoor.com Salary Calculator
- PayScale Salary Calculator
- U.S. Department of Labor Bureau of Labor Statistics
While these sources give you a general idea, you’ll need to consider what makes your market or industry unique. For example:
- The cost of living in your area
- The size of your business and its revenue
- The pool of job applicants in your area
Reach out to fellow business owners and friends to get a better idea of how they set salaries in your industry and in your local area.
3. Make the Grade
Creating pay grades is another helpful exercise in setting salaries.
Using your updated job descriptions, evaluate all of your positions by the level of responsibility and contribution to your organization.
For example, you can easily calculate the revenue your sales team generates. But for other positions, you may have to evaluate the unique knowledge they bring to your business.
Next, group the job roles with similar levels of experience, value, and responsibility together into a compensation structure. Create minimum, midpoint, and maximum ranges for each job category.
Within each one, you may have:
- Entry-level (grade 1)
- Mid-level (grade 2)
- Senior (grade 3)
|Entry (grade 1)||$25,000||$30,000||$35,000|
|Mid-Level (grade 2)||$35,000||$40,000||$45,000|
|Senior (grade 3)||$60,000||$65,000||$70,000|
Think about your hiring strategy like a marketer. For example, marketers set scores to determine how qualified leads are for their sales team.
In the same way, create a point system for determining salary ranges. This is a great exercise because it helps you understand what you value most in a candidate and how to compensate them best.
|Quality||Junior Designer||Senior Designer||Creative Director|
|Experience (40 pts max)||15||25||40|
|Education (20 pts max)||10||15||15|
|Character (40 pts max)||20||30||40|
|Total Points (100 pts max):||45||70||95|
4. Match the Market
While you don’t want to break the bank, not matching the market rate will make it hard to hire and retain top talent.
According to a survey of chief financial officers by HR consulting firm Robert Half, the top reason good employees quit was inadequate salary and benefits.
A related survey showed that 38% of office workers reported poor compensation as their primary reason for quitting a job.
While the numbers may vary, one thing is for sure: employee turnover is expensive.
Carving out time to write job descriptions and calculate salary ranges will fine-tune your hiring process, helping you attract better candidates that will benefit you and your team, and help your business grow.
97% of employees don’t want to return to the office full-time.
5. Offer Benefits
Salary may be the largest piece of your compensation package, but it’s not the only piece.
Benefits such as health insurance, dental insurance, retirement plans, paid vacation, and tuition assistance can also add value for your employees and set you apart from the competition.
A Glassdoor study showed that about 80% of employees prefer more benefits over a salary increase.
Health insurance alone can be valued at between $5,000-$30,000 depending on the number of dependents and employee contribution.
One highly sought-after benefit you can’t put a price tag on is flexibility.
If you can’t pay at or above the market, offering flexible hours is equally valuable, especially since the surge of remote workers in our post-pandemic world.
Ensure a Homerun.
We’ve provided you with tips on how to set salaries – but we also know that, as a business owner, you may have too much on your plate and not enough time in your day.
Are you owner, manager, and HR wrapped into one person? Or is your HR manager struggling to find time to assist you in building job roles and setting salaries?
Consider outsourcing some (or all) of your HR responsibilities to your payroll and HCM provider.
After all, the HR tech sector is set to reach $90 billion in the next six years, likely growing by almost 2x by 2025. (Statista, 2021)
More and more business owners like you are outsourcing their HR needs, integrating payroll, timekeeping, benefits, and even applicant tracking to HCM providers who have intuitive platforms and white glove customer service.
This enables you to focus on developing and leading your team while getting back to the passion that built your business.
Are these confusing industry acronyms confusing? We think so too. Check out our article on the 3 Ways HCM Benefits Your HR Department (we promise, we’ll explain them – they’re not as scary as they look).