Why Are Salary Grades & Salary Ranges Important?

by Jeffrey L. Jones - Updated September 26, 2017
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The method by which a company sets its salary structure directly reflects its overarching pay philosophy. Establishing salary grades and salary ranges are one viable and popular pay structure system.

The Facts

Salary grades and salary ranges group job functions into pay ranges in which each position’s compensation is determined according to its placement in a hierarchy of positions above and below it.

Features

The company's overall payroll budget and the market values of varying positions provide the key parameters for setting pay grades and ranges. Compensation experts set benchmarks for the market value of a job by studying compensation surveys of similar positions in other companies.

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Effects

Well-established pay ranges provide a framework for personnel to know their position in the organization and ensures that managers administer pay increases impartially. It also provides a yardstick by which employees can measure past and future advancement.

Benefits

By carefully setting and maintaining salary grades and ranges, companies stay competitive in the marketplace. This helps them attract and retain high quality personnel.

Considerations

Pay ranges should be clearly defined and communicated to employees. In the hiring process, the sooner a salary range can be communicated the better. This will help both the candidate and the hiring manager assess the viability of moving forward in the hiring process.

About the Author

Jeff Jones has been a writer since 1995 after a career in corporate marketing. His writing covers a range of business topics including marketing, corporate culture and human resources. More recently, he has written on topics of spirituality and life in the church. He has a degree in journalism/marketing from Texas A&M University and a master's in Christian education from Perkins School of Theology.

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