How to Set Pay Scales
Employers use pay scales to determine employees’ wages and salaries. Pay scales are usually listed in table form and can take into account education, experience, and other factors. They help employers remain consistent in setting pay and protect against favoritism.
In order to understand and set pay scales, there are other key terms HR, and compensation professionals should know:
- Pay grades compare and rank jobs within the organization. Many employers use a system such as BLR’s nine-factor analysis, a job evaluation tool to rank jobs based on skill, education, experience, and duties. Based on the factors, a pay grade or job grade is assigned that correlates to the salary range within which positions with that pay or job grade will be paid.
- Rate range refers to the spread of salaries paid for jobs assigned to the same job grade. The rate range for a job grade consists of a minimum, midpoint, and maximum rate of pay.
- Job pricing involves establishing rate ranges, that is, minimum, midpoint, and maximum dollar values for each labor grade. By studying wage and salary surveys, employers can compare wages in the labor market to the jobs within their organization. The result is a scale of wages that allows the employer to compete in the labor market (external equity) while ensuring that jobs that are worth more to the organization are paid more than those of lesser worth (internal equity).
- The midpoint is the rate at which an employee who is fully qualified and performing the job at an acceptable level would be paid. The rate range for a job grade consists of a minimum, midpoint, and maximum rate of pay. At BLR, the minimum is calculated at 75% of the midpoint and the maximum at 125% of the midpoint.
Some employers reveal their pay scales to employees. For example, the federal government publishes its pay scales for both civilian employees and military personnel. In the case of the civilian pay scale, the government has 15 pay grades and 10 steps. An employee in pay grade 15 and step 10 would earn the minimum yearly wage ($146,757 in 2022).