Thursday, January 21, 2010
Once the analyst has calculated the salary range Mid-point for each of the 10 grades in the sample, the analyst will generally move on to computing the range Minimums and Maximums. The width of an organization’s salary range, i.e., Minimums to Maximums is part of the employers overall compensation strategy. Typical range widths are 30%, 40% or 50% from Minimums to Maximums. However, under certain situations ranges could be 100% wide for “broad-bands” or 20%-25% wide, depending on the needs of the organization. Needless to say, these decisions should be made in advance as part of developing and gaining management approval of the overall compensation strategy.
Obviously, salary range Minimums and Maximums tell the organization the lowest and highest salary that should be paid to a given employee for a given range. However, there may be exceptions where employees are below the Minimums (green circle) or above the Maximums (red circle). Employees hired at the Minimum of the salary range may not have had a performance review opportunity to increase their pay by the time a new Minimum is put in place. At times, an employer may hire employees below the Minimum of a range. This may a developmental effort for those do not have 100% of the job skills, however, are perceived to able to develop those attributes very quickly. At the other end, for whatever reason, is the red-circled employee who was demoted, took a step down or transferred into a role at a lower grade level. Some organizations might allow an employee to step into a lower level job to facilitate the employee’s desire to pursue a new career path.
Addressing green or red circled employees should be driven by the employers overall compensation strategy and its policies and may be affected by any labor agreements. One approach for green-circled jobs is to bring them to the Minimum of the new range. Some employers may choose to do this adjustment in a single step or multiple steps over 30-60-90 days. However, if merely brought to the Minimum, the employee may be green-circled again next year, depending on how fast ranges are moving. The cost associated with adjusting green-circled employees will be one component of the overall cost to implement new ranges. Red-circled employees may be left at their current salary level or reduced in pay over some period of time. The actions taken to decease the incumbent’s pay are often a function of why the employee is in the lower salary range. The reduction in the cost associated with adjusting red-circled incumbent may offset, to some degree, the cost of increasing the pay for green-circled employees.
The calculation of the salary range Minimums and Maximums is a straightforward process of increasing the projected salary range Mid-point by some percentage or amount and correspondingly deceasing the Mid-point by an identical value. By definition, the Mid-point divides the salary into two equal halves. The width of a range is generally the same for all grades, however, based on the organization’s needs, the width can vary as the grades increase.
The table below gives the percentage subtracted from and added to the salary range Mid-point to achieve the desired overall range width. Therefore, if the employers overall compensation strategy calls for a range width of 35%, then 15% (-15% and +15% ¹ 30%) should be subtracted from and added to the salary range Mid-point. It may seem counterintuitive, but range width is measured from Max to Min whereas the Max and Min themselves are calculated from the Mid-point. Example, if the range Mid-point is $45,000, the Minimum is $45,000 * (1-.15) = $38,250 and Maximum is $45,000 * (1+.15) = $51,750 or 35% as measured from Minimum to Maximum.
Once the analyst has calculated the salary range Mid-point for each of the 10 grades in the sample, the analyst will generally move on to computing the range Minimums and Maximums. The width of an organization’s salary range, i.e., Minimums to Maximums is part of the employers overall compensation strategy. Typical range widths are 30%, 40% or 50% from Minimums to Maximums. However, under certain situations ranges could be 100% wide for “broad-bands” or 20%-25% wide, depending on the needs of the organization. Needless to say, these decisions should be made in advance as part of developing and gaining management approval of the overall compensation strategy.
Obviously, salary range Minimums and Maximums tell the organization the lowest and highest salary that should be paid to a given employee for a given range. However, there may be exceptions where employees are below the Minimums (green circle) or above the Maximums (red circle). Employees hired at the Minimum of the salary range may not have had a performance review opportunity to increase their pay by the time a new Minimum is put in place. At times, an employer may hire employees below the Minimum of a range. This may a developmental effort for those do not have 100% of the job skills, however, are perceived to able to develop those attributes very quickly. At the other end, for whatever reason, is the red-circled employee who was demoted, took a step down or transferred into a role at a lower grade level. Some organizations might allow an employee to step into a lower level job to facilitate the employee’s desire to pursue a new career path.
Addressing green or red circled employees should be driven by the employers overall compensation strategy and its policies and may be affected by any labor agreements. One approach for green-circled jobs is to bring them to the Minimum of the new range. Some employers may choose to do this adjustment in a single step or multiple steps over 30-60-90 days. However, if merely brought to the Minimum, the employee may be green-circled again next year, depending on how fast ranges are moving. The cost associated with adjusting green-circled employees will be one component of the overall cost to implement new ranges. Red-circled employees may be left at their current salary level or reduced in pay over some period of time. The actions taken to decease the incumbent’s pay are often a function of why the employee is in the lower salary range. The reduction in the cost associated with adjusting red-circled incumbent may offset, to some degree, the cost of increasing the pay for green-circled employees.
The calculation of the salary range Minimums and Maximums is a straightforward process of increasing the projected salary range Mid-point by some percentage or amount and correspondingly deceasing the Mid-point by an identical value. By definition, the Mid-point divides the salary into two equal halves. The width of a range is generally the same for all grades, however, based on the organization’s needs, the width can vary as the grades increase.
The table below gives the percentage subtracted from and added to the salary range Mid-point to achieve the desired overall range width. Therefore, if the employers overall compensation strategy calls for a range width of 35%, then 15% (-15% and +15% ¹ 30%) should be subtracted from and added to the salary range Mid-point. It may seem counterintuitive, but range width is measured from Max to Min whereas the Max and Min themselves are calculated from the Mid-point. Example, if the range Mid-point is $45,000, the Minimum is $45,000 * (1-.15) = $38,250 and Maximum is $45,000 * (1+.15) = $51,750 or 35% as measured from Minimum to Maximum.
The following table gives the salary range Minimums, Mid-points, and Maximums for each of the 10 grades used in the earlier example with a range width of 50% calculated by subtracting 20% from and adding 20% to each of the 10 salary range Mid-points. Please note, the Width in $$$ is 50% of the range Minimums and the Minimums are 20% below the Midpoints and the Maximums are 20% above the Mid-points.
Thanks for this great information. Payroll management is very important in the company and it is good to have payroll calculator to handles both hourly and salary calculations, federal withholding etc.
ReplyDeleteRegard
Jimmie Menon
guelph payroll service.