Measuring Pay to Salary Ranges: Part 2

In our last post, we explored two common methods for assessing employee pay: compa-ratio and position in range. To recap, compa-ratio evaluates how close an employee's pay is to the range midpoint, while position in range assesses their pay relative to the full salary range. However, neither metric reveals how aligned an employee’s compensation is with their career progression goals. Aligning pay with career goals is essential for fostering a clear career path and ensuring that compensation reflects both current contributions and future potential.

Compensation professionals know the importance of paying employees fairly and competitively, but how do you know if you are truly meeting these goals? How can you meaningfully measure your pay philosophy execution to ensure your employees are properly rewarded and incentivized to continue their career at your organization?

Let us consider a new framework that measures an employee’s range progression, while taking employee performance and tenure into consideration. We will start by allocating employees into four distinct categories: New Employee, Qualified Professional, High Potential Employee, and Subject Matter Expert - as measured by tenure, performance rating, and skill set.
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Next, we overlay the employee categories on to their range and establish goals for each cohort. The general guidance on a salary range is to pay a fully proficient employee at midpoint, with newer and less skilled employees paid lower than midpoint and employees with longer tenure and stronger skills paid above the midpoint. By applying this guidance to our employee categorizations, we can develop range goals and targets for each cohort as follows:

Based on these goals, we can leverage the spirit of traditional formulas with these Range Target goals to understand how close the employee is to their goal. Let us start with the compa-ratio formula. Instead of using the range midpoint as the denominator, we will use the range target associated with the employee’s category to calculate the Goal-ratio.

An organization that is further on the path to supporting employee career progression can take things to the next level and identify the ‘Position in Career Range’ for each employee group. For example, to ensure fair pay practices and to avoid salary compression within teams/departments, an organization might implement a policy like this:

• No employees will be paid below the range minimum, including new employees

• Employees identified as Qualified Professionals will be paid between the first and third quartiles

• High Potential Employees will be paid between range midpoint and range max, not to exceed the max

• Subject Matter Experts will be paid between range midpoint and range max, maybe allowing for these employees to be paid up to 5% above the range maximum

Again, we can leverage the traditional position in range formula with slight modifications, to measure how aligned actual pay is with the newly proposed framework above by substituting in the Range Target goals for the range max and/or range min.

Using this formula will give more precise results on employee pay within range. We know that results between 0 and 1 mean that the employee is paid within their target range, negative values indicate that an employee is underpaid for their category, and results above 1 means the employee is paid above target. This framework will help prioritize any spend related to merit or market adjustments. Also, it will help to identify employees who are candidates for promotion.  

All of this is to say, traditional measures of employee pay such as compa-ratio and position in range are great for high level assessments of pay but provide limited insights into an organization's ability to support career progression goals. By introducing a new framework that categorizes employees by tenure, performance rating, and skill set, organizations can establish more meaningful range goals (with the ability to measure attainment) for each cohort. The Goal-ratio offers a more nuanced understanding of how close an employee is to their career progression target. Additionally, the Position in Career Range formula provides further insight into how actual pay is aligned with the established framework. By leveraging these formulas, organizations can gain a deeper understanding of their employees' compensation and make data-driven decisions about merit increases, market adjustments, and promotions.  

We would love to hear your thoughts on this goal-based approach to range progression. Visit the Contact Us page and drop us a line!

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