How to build compensation ranges

Comp Ranges
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Wondering when and how to setup compensation ranges for your organisation? In this article, we will guide you on the steps to structure them.

As compensation ranges will help you set up fair and shareable compensation policies for all employees, learning more about these structures and how to create them can help you make decisions about compensation for your teams.

What are compensation ranges?

Compensation ranges represent your internal compensation policy and shows a Minimum, Midpoint (or Benchmark) and Maximum amount for employees in a certain position or group of similar jobs within the company.

Usually, companies define ranges based on salary but some may include ranges from the total compensation (total cash or total package).

These ranges can be used internally by HR teams, Managers and Executives or externally to hire job candidates.

Why is this important?

Having a base compensation framework is a great way to ensure fair assessment between employees, relative to an organization’s compensation philosophy. Everything linked to increase budgets, adjustments and promotion are clearly explainable, shareable and without ambiguity (which helps a lot to communicate).

You put the focus of compensation on the position and its value to the organization rather than on the person in the position. Employees who provide similar value to the company will, therefore, be paid similarly.

How to establish ranges?

If you don’t already have compensation ranges, you might be wondering how to establish one. How many ranges should you have? Should you be above, below, or at market, and how do you know where you are? Below are a few steps to get started:

Create job families

Group the job titles you have together into general families (Engineering, Operations ,etc.). Within each family, make sure that the roles, missions, and compensation should be roughly the same for two employees with the same qualification and experience.

Compensation can widely differ across roles, both in terms of amount and pay structure, thus it is useful to begin grouping them (even though you may find it hard to do for some departments where there are fewer positions).

International: If your organization is already spread across different countries, use this information to further group your employees so you ensure to compare similar environments.

Define your job levels

Now that you have your families grouped, you should define job levels which you’ll use to set your ranges. For instance, it could be from 1 to 7 based on experience and career path (individual, management).

Once your levels are established, you need to fit your team’s existing jobs into the titles that you’ve established. Generally, most of your employees’ job titles will already fit into existing levels. For others, you may have to retitle employees (or accept that certain levels will include multiple titles). This is an important process of structuring as a company so it’s essential to allow as few exceptions as possible.

For instance, this might look like this like this:

In this case, your structure is based on a group of employees from similar location (Country), Job family and job levels. You just created your job group!

Analyze your current compensation

Now, it’s time to determine compensation ranges. Unless your retention is not that great, you should start your ranges based on what you’re paying your existing employees.

Look at all of the employees in a job group, and try to build non-overlapping ranges that include all of your existing employees. If you have enough data, you might look at minimum, median and maximum to get a first feel of your internal situation before adjustments.

Internal Analytics in Qommet: Compare in a clic to which extent your compensation policy is aligned with the internal reality.

Otherwise, define a range spread from a midpoint to create ranges. For instance on a defined job group, your MIN is 80% of your midpoint and your MAX is 120%. When defining the range spread, make sure to link it with your comp policy to create the flexibility you need for your stage.

You should also triangulate your compensation data using all of the available sources (external and internal, including current compensation and recruitment offers) to define your midpoint.

Ideally, all of your existing employees will fit into these ranges, but if they don’t you may need to make adjustments. Look also at external market data if need be.

This is also a good time to correct any major outliers (meaning outside of ranges), particularly outliers who are underpaid.

Reiterate and update

Once you build your framework for ranges, you can easily adapt them based on your company’s strategy for specific populations as you grow (paying under, at or above the market).

Building ranges is a great foundation for future compensation decisions (new hires, increases, promotions, etc.) and should grow together with the context of the company’s life!

This is definitely helpful with internal pay equity concerns: employees can readily see how their job is ranked compared to other jobs within the organization. Having this structure can serve to keep employees loyal, engaged, and productive.

Qommet Makes Comp Reviews Much Easier

Compensation processes shouldn’t take up all of your time and effort. We can show you how to automate your HR workflows, which brings together all of the relevant data in one place, so everyone can collaborate on compensation decisions.

Avoid spreadsheets and centralise everything in one place. Contact us to see how our platform can work for you.