# Constructing Salary Structure – Range Spread

Introduction

One of the challenges in constructing a salary structure using data-points is deciding on the range spread to use. Range spread is also known as pay range width or salary range width.

Range spreads should increase with the increase in the level of job complexity. It should not be the same percentage for all job levels.

Formula

Range spread can be calculated two ways. In the first method, the range spread is from minimum pay to maximum pay is (Maximum pay – Minimum pay / Minimum pay). You read that as “Range MAX minus Range MIN divided by Range MIN”. Here you use the minimum pay as the base.

A second method is to calculate the range spread above and below the midpoints. The formula for the range spread above the midpoint is maximum pay minus midpoint pay divided by midpoint pay. The formula for the range spread below the midpoint is minimum pay minus midpoint pay divided by the midpoint pay. The last answer is a negative percentage. In either case, you use the midpoint as the base. The range spread above and below the midpoint pay should be the same.

The range spread given by the second method is smaller than that given by the first method simply because the denominator is larger for the second method (midpoint pay is larger than minimum pay).

A third way is simply to define the relationship based on the midpoint pay, that is express minimum pay as a percentage of the midpoint pay; and express maximum pay as a percentage of the midpoint pay.

A fourth calculation method is 1 plus % desired divided by 1 minus % desired, minus 1 = range spread.

Factors Affecting Decision of What Range Spread To Use

There are no hard and fast rules on the percentage to use as the range spread. Some of the factors to consider:

• The complexity of the job.
• The number of employees, positions and organizational levels.
• The number of pay structures.
• Whether broad banding is desired.
• Whether there are similar positions that can be grouped into pay grades.
• The number of pay grades.
• Average salary increases.
• The number of long staying employees.

Some Examples You Can Use As Guides

WorkatWork suggested the following in their Handbook:

• Higher level managerial, executive, technical: 50% and above
• Higher level professional, administrative, middle management: 40 to 50%
• Clerical, technical, para-professional: 30 to 40%
• Lower level service, production, maintenance: 20 to 25%

Henderson suggested the following range spread:

• Middle and Senior Management: 50% to 100%
• First level management, administration, professional: 40% to 60%
• Clerical, paraprofessional, technical staff:25% to 40%
• Laborer and Tradesmen: Up to 30%

Milkovich and Newman suggested the following range spread:

• Top level management: 30% to 40% above and below the mid-point.
• Entry to mid-level professional and management positions: 15% to 30% above and below the mid-point.
• Production and office staff: 5% to 15% above and below the mid-point.

In a sample that I looked at, Watson Wyatt suggested the following:

• Senior Executive: 75% to 100%
• Management: 60% to 75%
• Professional and Supervisor: 50% to 60%
• Entry level jobs: 30% to 40%

Mercer seems to have different range spread for different industries:

• Executive: 50% to 100% / 75% to 100% / 50% to 100%
• Management staff: 40% to 75% / 60% to 75% / 40 to 60%
• Professional staff: 30% to 60% / 50% to 60% / 25% to 40%
• Para-professional staff: 20% to 40% / 30% to 40% / Up to 30%

Ann Barnes Altura Consulting Group mentioned that in the 1970s and 1980s

• Top-level management positions: 60 to 120%
• Entry to midlevel professional and managerial positions: 35 to 60 %
• Office and production positions: 10 to 25 %.

One general guide suggested the following range spread:

• Middle and Senior management staff: 50% to 100%
• Exempt first level management staff: 40% to 60%
• Non-exempt clerical and technical staff: 25% to 40%
• Non-exempt other staff: Up to 30%

Another general guide suggested the following range spread:

• Executives, vice-president and managerial staff: 50% and above
• Professional and supervisory staff:40% to 50%
• Clerical, technical and administrative staff: 30% to 40%
• Services, production, maintenance staff: 20% to 30%

Some Tools

Towers Watson has a calculation tool to let you calculate the minimum and maximum salaries when you provide the desired salary range spread and midpoint pay.

https://www.twdataservices.com/twds/public/ext/content.jsp?title=Salary%20Ranges&content=/tools/salaryranges.html

REFERENCES

Determining Salary Widths by Professions

http://www.payscale.com/compensation-today/2009/04/determining-salary-range-widths-by-profession

Time for a Reality Check on Salary Ranges?