Making Decisions on Midpoint Differentials

Introduction

What are the pros and cons of having a base pay structure with a constant midpoint differential versus midpoint differentials that increase with higher pay grades?

Constant Midpoint Differential

PROS CONS
Consistent treatment of promotions and salary management May fail to reflect reality of market concavity
Easier to understand and communicate Forcing constant midpoint necessarily results in higher discrepancy between market and wage structure (a better fit is achieved with two or three-tiered differentials than with a single one)
“Perceived” elegance  

Problems with Constant Midpoint Differentials

Constant mid-point differentials produce compression and failure to match normal incumbent pay progression patterns while expanding better matches real-world reality.  People learn low-skill hourly jobs faster than complex professional/management jobs and tend to hit economically-justifiable maximum levels faster in the lower-paid positions, too.  Salary expectations also are more tightly clustered at lower income levels while six-figure jobs can have tremendously wide market ranges and highly variable internal equity values that fluctuate even more with individual KSAs.  Those observations do rest on a few normative assumptions, of course, and may not apply to a Broadband plan or to a classification system with extraordinary numbers of individual grades.

Increasing Midpoint Differentials

PROS CONS
Flexibility to reflect actual responsibility progression A large discontinuity can drive the wrong behaviors (either create a high level of requests to jump over the breakpoint, or manager barriers to proceed with promotions when they imply a high differential).
Better reflects diversity of experience and competitive needs at the top compared to lower entry level clerical positions.

Conclusion

Let reality dictate your midpoints, not some need for design consistency.

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