Creating a
Salary Structure
101
Molly Hegeman, VP HR Services, CAI
For Jennifer Solomonson, TEA
 Review market pricing concepts and
theory.
 Identify sources that can be used to gain
competitive market pricing data.
 Discuss the steps in the market pricing
process.
 Learn how to interpret market pricing
data to develop comprehensive salary
grades.
Total Rewards Model
WorldatWork Total Rewards Model
Elements of Compensation Program
Goals/Strategy
Motivate
Legal
COMPENSATION
Competitive
Equitable
Security
Compensation Philosophy
Ask Yourself – What is Your
Market Position?
Market Position
Lag - Match - Lead
Market Pricing
Market-based evaluation (Market Pricing)
 Use of pay survey data to identify the relative
worth or value of the job based on what other
employers in the area are paying for similar
jobs.
 Market data is most often gathered through
wage & salary surveys.
Market Pricing
Market Pricing Steps
Analyze and document job content
Identify jobs (benchmark or all)
Identify and select relevant labor
markets
Identify data collection options
Collect and analyze data for jobs
Develop a structure of midpoints
(market or grade based)
Assign jobs to the structure
Slot non-benchmark jobs into the
structure
Address any outliers
Market Pricing Sources
Best Sources/Most Reliable Data:
 Government agencies (i.e., BLR)
 Professional associations and consulting firms
 Sponsored custom third party surveys
Additional Sources/Less Reliable Data:
 Self reported data
 Antidotal reporting/phone calls
 Data from one or two competitors
Using Survey Data
o Select appropriate measures
o
o
o
Weighted Average/Mean
25th, 50th (median) and 75th percentile
Bonus??
Example: HR Manager 2015 NC Wage & Salary Survey
Using Survey Data
1. Age all survey data to a common point in time
• Determine effective date of each survey.
2. Determine if weighting will be used
• A given survey may be a better match than others.
3. Compare results of multiple sources
• Best practice – at least 3 different surveys.
• Goal is to match 50% of all jobs.
• 70% or higher job duty match.
Market Average
NC
W&S
Building a Salary Structure
Developing Salary Structure
 Developing Pay Ranges
 Review job evaluations
 Sort jobs from least to greatest by market average
 Look for natural breaks in the results
 This is an art as opposed to science.
 Develop preliminary ranges by using the natural breaks
 Having developed these ranges will help you make edits after
applying best practice.
Developing Salary Structure
Minimum
The lowest
salary that
should be paid to
a person who
has the minimum
qualifications
necessary to
perform the job.
Market
Rate/Midpoint
The equitable rate of
pay for a person who
is fully qualified to do
the job and is
performing the job
satisfactorily. The
job’s “going
rate”/market rate.
Maximum
The highest salary that
should be paid to a person
who is fully qualified for the
job and is performing the
job satisfactorily.
Generally appropriate for
someone who has been in
the job a longer time with
no intent or opportunity to
advance.
Developing Salary Structure
Range Spread
o Width of a pay range from minimum to maximum.
o Tradition structure:
o Service, Production and Clerical 20% to 40%
o Professional and Supervisory 40% to 50%
o Managerial and Executive 50% or wider
o Modern structure
o 50% for all positions
Midpoint Progression
o The percentage differential between midpoints
o Typically 10 - 12%
o Increases as you get into higher level jobs
Developing Pay Grades
Assign Jobs/People to Structure
Compa/Ratio
o An individual or group salary expressed as a
percentile (or decimal)
o Market ratio should be .80 to 1.20
o “At Market” is generally defined as .9 – 1.10
Identify Outliers
o Red-Circle Employee
• A salary/wage that is greater than the pay range maximum.
• Best practice – Greater than 1.20 or 120%
o Green-Circle Employee
• A salary/wage that is less than the pay range minimum.
• Best practice – Less than .80 or 80%
Maintaining Your Structure
Annual administrative maintenance of salary
ranges
o Market Movement – analyze actual and forecast
merit movement
o Review benchmark and high demand jobs, equity
and competitive position
o Salary Range Adjustment – company
determination based on market movement and
organizations budget
o Merit Budget – what the company can afford,
applied uniformly or focused on need