BUILD

PAY RANGES
Step up to Smart
Compensation Planning

A PayScale Publication
 Why build
pay grades?

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“ “
Traditional salary survey providers are like the 10 o’clock news. I don’t wait until 10
o’clock to watch the news anymore. PayScale is information on demand.
- Shad Glass, HR Director at Kimray

There are a few ways you can proceed to build pay o Allows decisions regarding internal alignment.
ranges. You can use your data to create a market
midpoint and then build individual ranges for every o Easier placement of jobs that don’t have a market
job in your organization. Doing it this way, every
benchmark.
separate job will have a different pay range. Or, you
can choose to build grades.
Pay grades also help you evaluate where a specific
Grades are recommended over individual ranges,
employee should be. Placement within the grade
but it is up to you to decide what is best for your
organization. can be measured by compa-ratio, which is the

employee’s pay divided by the range midpoint.

Three Main Reasons Why Pay
Pay grades are used to group jobs that have
Grades are Preferred Over approximately the same relative worth. All jobs within

Individual Ranges: a particular grade are paid at the same rate or within

o Easier to administer with fewer pay ranges. the same pay range.

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How To Build Pay Ranges
o Using a specific formula, pay grades can be easily

determined. Choose a mid starting point based on

minimum salaries within your organization.

o Build new midpoints from a midpoint differential.

o Create minimums and maximums for the range.

o Verify grade placement against internal alignment and

hierarchy.

Building Pay Structure (ranges)

Pay ranges set the upper and lower bounds of possible

compensation for individuals whose jobs fall in a pay

grade. Pay ranges are created for each grade. A grade

is what an employee is assigned to based on the scope

of his or her responsibilities. A range is the value of the

minimum to the maximum.

Determining Your
pay ranges than if you use a general definition of
a position, such as Software Developer.

Pay Grades
o The pay increase and promotion policy of the
organization. The easier it is for employees to
advance within their jobs, the more grades there
will likely be as well.
The number of pay grades you use will influence your
midpoint differential and should sufficiently distinguish Midpoint Differentials
difficulty levels of different jobs.
The number of grades is determined by a midpoint
differential. Choose a midpoint differential based on
The Number of Pay Grades all the factors listed above (Determining the Number

Varies in Response to:

of Pay Grades). With more grades, the midpoint
differential will be smaller. With fewer grades, the
o The size of the organization. differential will be wider. Typically, midpoint differential
will be a number between 10-25%.
o The vertical distance between the highest and
For example, if you have an organization that has
lowest level job.
relatively small differences in pay between the highest
o How you define the jobs within your organization level employee and the lowest level employee and
and how you differentiate between them. For you have lots of job levels (Jr., Sr. etc) you would
example, if you finely define jobs into levels, such want to have smaller midpoint differentials (likely
as Junior, Senior, etc., then you will have more 12-15%).

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 Calculating Midpoints Range Widths
The spread between minimum to maximum will
Starting Point: $32,000
depend on many variables within your organization.
Midpoint Differential: 15%
Generally, pay spreads are narrower for lower paying
Grade Rounding jobs and wider for higher paying jobs. This is because
1 $32,000 $32,000 of longevity, time to proficiency and tenure. It’s more
2 $36,800 $37,000
likely that a person at a higher paying job, with more
responsibility and bigger scope, will have a greater
3 $42,320 $42,000
range to grow in their position and pay than someone at
4 $48,668 $49,000
a lower-level job where the skill level is lower.
5 $55,968 $56,000
Having an overlap in pay ranges makes it possible for
6 $64,363 $64,000
an experienced employee in a low-grade job to be paid
7 $74,018 $74,000 more than an inexperienced employee in a higher-grade
8 $85,121 $85,000 job.

9 $97,889 $98,000

10 $112,572 $113,000 Typical Range Spreads:

o Choose starting midpoint o Hourly positions: 30-40%

o Choose midpoint differential o Salaried positions: 40-50%

o Choose rounding (optional) o Executive positions: 50-60%

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Calculating minimums and maximums Calculating Minimum 1/2 range spread = 20%

Once you have your midpoint and you have midpoint minimum
determined range widths, you will calculate the

$30,000 1.20 = $25,000

minimum by taking the midpoint and dividing it by
[Link] (1/2 of range spread), and the maximum by
multiplying the minimum by [Link] (the whole range
spread). Calculating Maximum Whole range spread = 40%

minimum maximum

$25,000 x 1.40 = $35,000

PayScale’s Insight Software Makes Creating Pay Ranges a Simple Process.

PAYSCALE
INSIGHT

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Assigning Jobs to Grades

Using market data to assign jobs Verifying Internal alignment

to pay grades You should verify the internal alignment of positions

Match the value of the aged, weighted market data at within a pay grade by evaluating the scope,
the target for the position to the range midpoint that responsibility, etc. of each job assigned to that pay
is closest to determine the pay range. For example, grade, because you want to make sure all those
if the value of the aged, weighted market data at the jobs are relatively similar. At times, you will find that
60th percentile (your competitive target) is $48,967
you may have to build your own pay structures for
use the table on page 40 to see that the job would
fall in pay grade 4 which has a range midpoint of exempt, non-exempt or technical jobs, because they
$49,000. may not fit with the pay structure.
Hot Jobs or Range Busters
You may have a group of jobs or a specific job that trend in the hot jobs, i.e. technology jobs or jobs
out-paces the rest. Those jobs are rising faster than within a certain geographic location.
the ranges and other jobs assigned to the pay range.
If it’s only a job or two, you can consider paying these
If this is the case, you need to decide what to do with employees a market premium. This is an amount over
these “hot jobs.” and above their base wage that is meant to account
for the increased market pressure on the position.
Here are Some Things to Example: If the average of the market data for the

Consider in This Situation:

hot job is 20% above the market rate for the rest of
the positions in the same pay grade, apply a market
Double check that the position is assigned to the premium for this job. The best rule of thumb is to
make the market premium as transparent as possible
right pay grade and that the market data is accurate.
so that the employee can actually see that they are
If multiple jobs begin to show up as hot jobs, then being paid above the market rate so that if the market
you may consider putting those into their own pay changes, and you need to take the extra pay away,
range. This would be the best option if you see a the employee will understand why.

2010-2020 Relative Experienced

Job Title
Projected Growth Median Pay
These 5 top jobs are more popular
Data Scientist 18.7% $98,600
than they were five years ago. Video Game Designer 32.40% $52,200
See more hot jobs here Sustainability Consultant 18.70% $59,200
Solar Sales Consultant 16.40% $45,100
Social Media Manager 13.60% $41,700
Conclusion
Now that you’ve started the hard work of
stepping up to good comp planning, check
out all the other steps in this e-book series:

Step 1: Gain Executive Support Stay on top of compensation

Step 2: Define Your Comp Strategy
with PayScale:
Follow the PayScale Index
Step 3: Develop Market Based Pay Structures
Subscribe to our Blog: Compensation Today
Step 4: Build Pay Ranges Attend a Webinar

Step 5: Implement Your Total Rewards Plan Download an HR Whitepaper

Creator of the largest database of individual compensation profiles in the world, PayScale, Inc. provides an immediate and precise
snapshot of current market salaries to employees and employers through its online tools and software. PayScale’s products are powered by
innovative search and query algorithms that dynamically acquire, analyze and aggregate compensation information for millions of individuals
in real time. Publisher of the quarterly PayScale Index™ PayScale’s subscription software products for employers include PayScale
MarketRate™, PayScale Insight™, and PayScale Insight Expert™. Among PayScale’s 2,500 corporate customers are organizations small
and large across industries including Mozilla, Tully’s Coffee, Clemson University and the United States Postal Service.

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