Range spread gets often talked about when creating base pay ranges or modifying existing salary structures. As the name suggests, it is a spread from a maximum to a minimum figure of a salary range. But what is an ideal range spread? If you ask, you will often come across responses like “it depends” or variations of it. The fact of the matter is, there is no set answer to range spread.
A salary structure is a strategic tool that helps organizations manage labor costs while promoting fairness, competitiveness, and compliance. According to a World at Work and Deloitte Consulting survey on Compensation Structures Policies and Practices published in June 2023, the median range spread was 50% for all levels other than executives. The average range spread was typically between 46-59%. There are two ways of calculating range spread; one is the spread from maximum to minimum, and the other involves the spread around the midpoint. When creating base pay structures, the spread around the midpoint is a common and standard approach. At a high level, here are few things to consider when deciding on that range spread:
- The Job Itself:
- Warehouse or production jobs may have few variations between roles, and as such, having a narrow range may be justified. For these types of positions, the range spread can be tighter because the duties and skills required are more standardized.
- Talent Strategy:
- Consider what type of organization you want to strive for. Do you want to promote employees quickly to higher roles, or do you prefer career development over a period of time within the role? Your talent strategy will influence whether you adopt a wider or narrower range spread.
- Affordability & Forecasting:
- It all comes down to cost and how salary ranges may need to get adjusted over time. Consider your organization’s financial capacity and how you foresee salary budgets evolving. Ensure that your salary structure is sustainable and adaptable to future financial changes.
When defining your salary range spread, it is crucial to balance these considerations to create a fair and competitive compensation structure that aligns with your organization’s goals and market standards. Understanding the nuances of your specific industry and internal job roles will guide you in establishing a range spread that supports your strategic objectives.