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How Does a Salary Range Work?

Pay Contributes to Motivation
By Susan M. Heathfield,

Information online makes researching salary ranges easier than setting salaries has ever been in the past - but, also trickier. The role of salary in helping you create a motivated, contributing work force is inestimable. These tips will help you address pay and salary issues in a way that contributes to employee motivation in your organization.
Determine Salary Philosophy

Determine your organization's salary philosophy. Do you believe in raising the level of base salaries in your organization or do you appreciate the flexibility of variable pay?

A growing, entrepreneurial company, with variable sales and income, may be better off controlling the levels of base salaries. When times are good, the company can tie bonus dollars to goals achieved. In lean times, when money is limited, the company is not obligated to high base salaries. A longer-term company, with fairly stable sales and earnings, may put more money in base salary.
Find Comparison Factors for Salary

While I believe every organization can benefit from industry comparison studies, if conducted by reputable organizations, the bigger question is whether you are competitive within your local market for most of your positions. Research the salary range for similar positions and job descriptions. The job description is particularly important for comparisons but usually harder to find for comparison.

Determine whether you are competitive with similar positions with organizations of similar size, sales, and markets. If you can find companies in the same industry, especially in your area or region, that is another good comparison source.
What Goals Must Salary Help You Achieve?

Pay must relate to the accomplishment of goals, the company mission and vision. Any system that offers an employee the "average" increase for their industry or length of service (usually 1-4 percent) is counter-productive to goal accomplishment. Even an above-average increase that differentiates one staff person from another can demotivate. One manager at a GM plant offered his star staff person a seven percent increase because she had accomplished all of her goals and "walked on water." Motivating? Should have been, however it was not when the staff person knew others in the organization were receiving ten percent increases and more.

Additionally, your pay system must help you create the work culture you desire. Paying an individual for his performance accomplishments alone, will not help you develop the team environment you want. Thus, you must carefully define the work culture you want to create, and aim your best salary increases at those contributing to the success of that culture. If you want your organization to change, define the change, and pay employees commensurate with their support of and contribution to the change.

Finally, your salary strategy must align with your human resources goals and strategies. If the HR function is charged with developing a highly skilled, outstanding workforce, you must pay above industry or regional averages to attract the quality employees you seek. Paying less than comparable firms will bring you mediocre employees and fail to fulfill the desire to create an outstanding workforce. If, on the other hand, the HR strategy is to get cheap labor in the door quickly with little regard for turnover, you can pay people less salary.

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