What Pay Range Data Can and Can’t Tell You

Many pay surveys routinely collect and report salary range minimums, midpoints and maximums. This data can provide helpful context, but it is also at risk for being misapplied by practitioners who haven’t the training or experience to correctly interpret the information.

Let’s start with a clear understanding of what we are looking at. When considering pay range data versus pay rate data reported in a survey, remember that pay range data reflects intent and pay rate data reflects actual practice. See the difference? When organizations develop and update base pay ranges, they are setting policy and guidelines for delivering on their pay intent. And they take a number of things into account when doing so, such as:

Internal value system: The relative importance that certain jobs and types of work have for their enterprise, regardless of what goes on in the external market or what other employers do.
Compensation philosophy: The organization’s strategy for how it pays people which might include paying above (or below) market rates for certain jobs/job families.
Pay structure approach: The organization may wish to guide pay decisions with a relatively tight set of 40 salary ranges OR they may wish to allow flexibility and development within roles by implementing a set of 5 broad bands.
Affordability: What the organization can afford to pay, relative to market levels.

Accordingly, there can be many reasons why actual pay rates at an employer — either for all jobs or a particular function/job class — might be high or low relative to the pay range set for the position; reasons why their actual pay practice might be different than the pay intent reflected by their ranges. Actual practice often reflects internal employee demographics. One function/job class might be dominated by long-tenured, more highly paid “veterans” and another may consistent entirely of new hires. Alternatively, actual pay practice can reflect dynamics in the outside labor market — perhaps increased demand and low supply for a critical skillset — which forces employers to ratchet up actual pay levels more quickly than they can review and adjust their policy and salary ranges.

The challenge with all of this, with assessing why actual pay may be high or low relative to reported ranges, is that you simply can’t know. Not only do you not know specifically which organizations are reporting which data points, you also face the fact that the variables necessary for understanding these differences aren’t captured in reported in surveys.

Does this mean that you can’t draw value from range reporting in surveys? Not at all. They are an additional data point and, as noted above, can provide helpful context especially if you know something about the particular labor market that might help you interpret differences between pay practice and intent. More information is better than less, I like to say.

It does, however, demand a certain level of caution. Be aware of what pay range reporting is not. It is not your easy answer to salary range development for your organization’s jobs. You know who you are out there, merrily copying and pasting ranges straight from surveys into — Presto! — your own salary range structure. Come on. You are better than that.

I leave you with a quote on copycatting from my esteemed colleague Jim Brennan. Forewarned is forearmed:

Followers wait for others to make their policies for them and imitate, while remaining ignorant of the motivations or purposes that inspired those practices elsewhere!

This article is from the archives of CompensationForce.