How to Establish a Compensation Range That Will Attract and Retain Top Talent

Establishing a compensation range means looking at the job’s duties, what similar jobs pay, the skills and experience needed, and what the company can afford. It also considers where the job is and how many people are available for the job.

Your pay range is your opportunity to attract and retain top talent, but how do you create one while keeping the company's budget in check? This article tackles the compensation range definition, provides examples, explores the factors that determine it, and explains how to establish one for your company with the assistance of Salary.com's Compensation Software.

What is a salary range?

A salary range is the difference between the lowest and highest pay for a specific job in a company. It sets the limits for what an employee can earn, considering factors like experience and performance. The purpose of a compensation range is to give employees a clear idea of the potential earnings linked to their position.

This range helps companies offer fair and competitive pay, which attracts and retains qualified individuals. The traditional salary range typically spans between 15% and 30%, but others may have a much higher compensation range of up to 50%, depending on the company and certain factors.

A compensation range has three parts:

Low salary (bottom): $42,000

Midpoint salary (median): $60,000

Maximum salary (max): $78,000

Salary range: $42,000 - $78,000

Why does a salary range matter?

Salary ranges matter for several reasons:

Transparency and informed decisions

Compensation ranges make it clear for job seekers and current employees, helping them understand what to expect in terms of pay and make smart career choices.

Setting realistic expectations

Understanding the compensation range for a job helps people have realistic expectations about their pay, which lowers the chance of feeling let down or unhappy in the future.

Building trust with employers

When employers openly share compensation ranges, it creates trust with both current and potential employees, showing that they are dedicated to fair pay practices.

Attracting the right talent

A clear salary range can draw in suitable candidates who match both the job and the pay, making the hiring process more successful overall.

Efficiency in the hiring process

A set compensation range makes hiring smoother by giving a basis for negotiations, cutting down on lengthy talks about pay, and saving time and resources for everyone.

Competitive edge

Providing competitive pay within a set range helps employers stand out in a tough job market and attract the best talent.

Promoting pay equity

Salary ranges promote fair pay by setting a standard for compensation based on factors like experience and skills, which helps prevent inequalities based on gender, race, or other factors.

What factors determine salary range?

Several factors determine the salary range for a particular position. These factors can include:

• Market rate. Employers check the market to set competitive salaries for similar positions, aiming to attract top candidates.

• Industry. Salaries differ among industries depending on factors like skill demand, profitability, and talent competition. For example, the tech industry in other countries usually pays more due to its need for specialized skills and intense competition for top talent.

• Location. Salaries may vary based on location due to differences in the cost of living. For example, salaries in major cities with higher living expenses tend to be higher than those in rural areas.

• Company size and profitability. Bigger, more profitable companies often pay higher salaries than smaller or less profitable ones. A company's financial health can also affect its ability to offer competitive pay packages.

• Budget constraints. Every company has a budget, which affects the compensation range they can offer for a specific position.

• Job type and responsibilities. The complexity and responsibility level of a job affect its salary range. Senior or specialized roles usually have higher salaries than entry-level positions.

• Education and experience. More education and experience usually mean higher compensation ranges. Advanced degrees, certifications, and years in a field can all affect salary negotiations.

• Skills and certifications. In-demand skills and certifications valued by employers can result in higher salary offers.

• Performance. Employee performance, both past and potential, can influence salary decisions. High-performing employees might get raises or bonuses, which can raise their salary above the usual range for their position.

Salary range examples

Here are example scenarios to help you understand salary ranges. Note: These compensation ranges are hypothetical. For precise data, the Bureau of Labor Statistics provides extensive information on compensation and salaries.

Scenario 1: Entry-level customer service representative

• Compensation range: $30,000 - $40,000 per year.

• Location: Small town or rural area.

• Industry: Retail or hospitality.

• Education/experience: High school diploma or equivalent; minimal experience required.

• Skills/certifications: Basic computer skills, good communication skills.

• Market rate: Average for entry-level positions in the region.

Scenario 2: Mid-level software engineer

• Compensation range: $80,000 - $120,000 per year.

• Location: Major tech hub (e.g., Silicon Valley).

• Industry: Technology.

• Education/experience: Bachelor's degree in computer science or related field; 3-5 years of experience.

• Skills/certifications: Proficiency in programming languages (e.g., Java, Python), experience with software development lifecycle, relevant certifications (e.g., AWS Certified Developer).

• Market rate: High demand for software engineers in the tech industry.

Scenario 3: Senior marketing manager

• Compensation range: $100,000 - $150,000 per year.

• Location: Metropolitan area (e.g., New York City).

• Industry: Advertising/marketing.

• Education/experience: Bachelor's or master's degree in marketing, business administration, or related field; 7-10 years of experience in marketing.

• Skills/certifications: Strong leadership and strategic planning skills, experience with digital marketing tools and analytics platforms, and relevant certifications (e.g., Google Analytics Certified).

• Market rate: Competitive salaries for senior marketing roles in urban areas.

How to establish a compensation range

Establishing a compensation range involves steps to ensure fairness, competitiveness, and alignment with organizational goals. Here's how to do it, with the help of Salary.com's Compensation Software to simplify the process.

The software helps employers in making confident pay decisions by providing necessary data and insights. It covers the entire compensation process, enabling quick and accurate job pricing and analysis of pay practices.

1. Step 1: Research industry standards

   Start by researching industry standards for the position you're hiring. Check salary surveys, reports, and resources like the Bureau of Labor Statistics to understand typical compensation ranges for similar roles in your industry and location.

   With Compensation Software, users can access the largest HR-reported compensation dataset. Price hot jobs and industry-specific roles, and merge jobs to meet your needs, minimizing data gaps. The Compensable Factors feature lets users adjust positions for specific skills, certifications, or education requirements, simplifying customization.

2. Step 2: Consider company budget and resources

   Assess your company's finances and budget limits. Figure out what you can afford to pay for the position while staying competitive. Consider factors such as revenue, profit margins, and future growth plans.

3. Step 3: Assess job requirements and experience

   Review the position's requirements and responsibilities. Think about the needed experience, education, skills, and certifications to do the job well. Decide if specialized skills are necessary or if it's an entry-level role.

4. Step 4: Define the compensation range

   Use your research and assessment to set a competitive pay range for the position. Consider industry norms, your budget, and job needs. Be flexible to negotiate with candidates based on their qualifications and experience.

   Compensation Software makes creating Salary Structures simple with its drag-and-drop editor. You can easily adjust ranges, move jobs, and save new structures. It also features a Forecast Costs tool to estimate expenses for aligning salaries with the market rate, including changes to structures or individual pay adjustments.

5. Step 5: Review and adjust as needed

   Regularly review and update the pay range according to market trends, industry changes, and feedback from employees. Keep an eye on salary surveys and industry reports to stay competitive. Also, listen to input from recruiters, HR, and staff to make any needed adjustments.

The customizable software centralizes compensation data for simplified survey management, participation, and analysis. It streamlines survey selection, data loading, and analysis with one-click exports to third-party templates. Also, users can create, edit, and share reports analyzing organization-wide compensation.

Making a compensation range within an organization can help increase the chances of attracting and retaining top talent. Offering competitive pay aligned with industry standards and company goals helps attract skilled professionals and ensures long-term success. Using Salary.com's Compensation Software makes achieving this easy.