Why Traditional Salary Ranges May Not be Relevant in Today’s Economy

123RF Stock Photo

Our salary ranges are not serving us as well as they once may have.

We know it. Unhappily, most employees know it, too.

My Compensation Cafe colleague Margaret O’Hanlon called attention to this reality last week in her post Do You Know What Your Salary Ranges Mean?

Margaret notes that the traditional salary range model, which communicates the essence of the deal we offer employees, no longer delivers on its purported promises.

This is tough to deny and not hard to understand. The salary range architecture most organizations use today gained much of its popularity in a period when base pay was moving at a much faster pace (e.g., 8-10 percent annually in the late 1970’s and early 1980’s compared to the tepid 3 percent of today).

The key issue about salary ranges

But what I found particularly interesting was the debate that popped up in the comment stream to Margaret’s post. At its essence, as I read it, the central question raised was this:

Do – should – salary ranges still reflect the cornerstone of the employment deal in that they outline and communicate the rules for setting and growing base pay?

OR

Are they an antiquated theoretical construct whose time has come and gone, an idea no longer in step with the realities of the real world?

My thoughts? Yes … and yes.

I’ve had the chance to work with many organizations who don’t have a formal salary structure, either smaller organizations yet to put in place any pay rules and policies, or, more established businesses who have (at some point) ditched their structures in an attempt to foster more “flexibility.” What I’ve found, more times than not, is that salary decisions in these places are all over the map, with little rhyme or reason, and often made in response to pressure (employee complaints or implicit/explicit threats of leaving).

And everyone knows it. Especially the employees.

Article Continues Below

Our salary management system may be out of step

With salary dollars being in scarce supply today and likely for the foreseeable future, having a salary structure in place ensures that there is a “median” and a set of guard rails to prevent pay decisions from falling too far off the road. And perhaps more importantly, and to Margaret’s point, having a salary structure in place typically gives employees at least a minimal amount of assurance that there are rules which are followed and that salary decisions aren’t based entirely on whim, favoritism or discrimination.

And yet, clearly, our long-held model of base salary management is falling out of step with business and economic reality.

Where do we go from here? I don’t believe that ditching structure entirely is an answer.

Broadbanding has taught us that less is not necessarily more (or is it that bigger isn’t necessarily better?). Tighter salary budgets, if that is our longer-term reality, might call for tighter ranges,  but will these fly in today’s fast-paced and fluid reality?

Do we move toward a newfangled mash-up of pay steps and ranges? Does this issue portend the long-awaited, often-touted death of the job and the corresponding advent of person-based pay?

What are you seeing, and what’s your take?

This was originally published on Ann Bares’ Compensation Force blog.

Ann Bares is the Managing Partner of Altura Consulting Group. She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems.

Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University.

Contact her at abares@alturaconsultinggroup.com.

Topics

2 Comments on “Why Traditional Salary Ranges May Not be Relevant in Today’s Economy

  1. I believe that a lot of the “rules” of compensation need to change. When I go back and look at my textbooks, etc. on classic compensation theory I just shake my head. This is an example of “it works in theory but not in practice”. Maybe I lean to much to the left but this stuff just doesn’t fit the business world anymore —- if it ever did.
    The classic example that really that bothers me, is freezing salary of an employee that is an outstanding performer because he/she is at the top of the salary range —and doesn’t yet qualify for a promotion. To balance the risk of losing a great employee/performer versus strict adherence to an antiquated theory when we don’t even know for certain what the top of the “range” is —- well, the decision is a “no brainer” in my mind.
    In my book, as long as there is no discrimination with salaries — and as long as you use salary ranges as “rough” guidelines then— go for it.
    Compensation needs to come to grips with the logic of using theory as a foundation but not worshipping it as a god. Break away from “lock-step rigidity” and begin to use logic. Talk with managers, discuss situations then make a decision. To do this doesn’t mean that things go to “hell in a handbasket” and you have lawsuits, EEO claims, protests at the front door of the company, etc. Compensation is so afraid to take any risk that it lives and breathes rules. And I say that as a Compensation person.
    Is that caffeinated enough for you?

  2. Couldn’t agree more. You can’t use salary ranges as a rigid construct but they are useful especially when it comes to estimating an approprtiate salary for jobs where market data is scare or non existent. Using job evaluation (anything from whole job ranking to scored questionnaires) helps you establish jobs that are comparable and hopefully some of these jobs will be benchmarks with market data. They are the ones you can use to build the salary ranges and then you can use the range data as a guideline for jobs where the market is your org. The value of a stellar employee should never be limited by the range – it should be based on what the employee contributes relative to others. So while the ranges are helpful in administering pay for most employees, we need to remember they are a guideline, especially when it comes to the org’s stars!

Leave a Comment

Your email address will not be published. Required fields are marked *