With most companies using a formal salary structure, knowing how to administer and assess your salary structure is a critical skill for compensation professionals. Understanding what type of salary structure is right for your company is important. Making sure the design of the structure supports your compensation and talent strategy is paramount.

Once you have the right structure in place, you need to know how to keep track of it and when to adjust it. With the increased demand for pay transparency and employees asking to see ranges, it’s more important than ever that you proactively manage the effectiveness of your salary structure. Over time, all structures and the assignment of jobs to ranges will need tweaking. Having in place a way to identify opportunities for improvement will help you head off major misalignment and disconnect.

In this article, we will be discussing how to identify and measure whether your structure, ranges, and assignment of jobs to ranges might be misaligned. We will also review some common compensation formulas that you can integrate into your periodic reporting to monitor how your structure is working.

What to look for

Regardless of the type of structure you have in place, it’s important to keep tabs on several things:

• Difficulty recruiting: Compensation professionals, working with those in talent acquisition, will typically identify a portion of the salary range that aligns with the hiring range. When there is a disconnect, recruiters will have difficulty getting applicants to accept offers using these ranges. Keep in mind, this is only one possible reason for difficulty in recruiting. Pay is rarely the only reason offers aren’t accepted. If the difficulty is persistent, however, it’s something to look at.
• Distribution of employees in ranges: Depending on the design of your salary ranges, you should have a certain expectation of how your population will fall within each range. With a traditional salary range, you would indicate a portion of the range for new hires and then progress up the range with more experienced employees. Does the makeup of your employee population — from those who are new in the role to those who are experienced — align with what you see in the overall positioning of employees in your ranges? Included in this observation would be whether or not you have employees above the maximum of the range or below the minimum, which we’ll talk about below.
• Out of range employees: There are possibly valid reasons for employees to be below the minimum of the range or above the maximum of the range. However, to make your job easier, you should work to prevent those situations from happening. Employees below the range could mean that a job is aligned to the wrong salary range. Employees above the maximum of the range could mean the same, but it’s often an indicator of someone who has been in the job for a long time and has reached the maximum value of the job. While it’s ok, it’s worth keeping an eye on these situations and working with your teammates in HR to actively manage the situation.
• Location or department placement: Take a look at individual departments or geographies. Track whether there are certain groups that are not following the distribution you would expect. For example, if employees in HR all fall in the lower quartile of their ranges with a compa-ratio of less than 80% (see more on compa-ratio below), you might have a problem either with how they are paid or how the jobs are assigned to ranges.
• Promotion/development challenges: This all depends on your talent management strategy and connection to your compensation philosophy. The way you recognize employees achieving new skills or stepping into new roles should fit within your salary structure and ranges. If you are having trouble agreeing with managers and HR partners on off-cycle increase adjustments or promotions, then there might be a disconnect in what they are doing (or expecting) in terms of rewarding employees for taking on new responsibilities.

Another thing to watch for is how particular ethnicities, genders, or other protected classes are positioned within ranges. It’s important to always have an eye on pay equity — a bigger topic that requires its own article.