Compensation benchmarking is best defined as the process of applying external market data to make fair and competitive compensation decisions. It may even influence the compensation strategy, policies, and practices. When compensation benchmarking is effectively used, companies can then attract top talent and pay competitive compensation rates while maximizing their budget.
Salary Range
A salary range represents the minimum, midpoint, and maximum rates that a business is willing to pay employees performing a job. Typically, the midpoint or control point is set to provide market competitive, fair, and equitable salaries based on the competitive marketplace for a business. Salary ranges can be determined using compensation software such as our Salary Assessor.
Salary Range (Employee Placement)
Salary Range Midpoint Progression
It is common to see salary range midpoint progressions (the percent difference between midpoints) within a salary structure as follows:
Administrative/Operative: 5-10%
Professional/Management: 10-15%
Executive: 15-20%
Salary Range Spread
It is common to see salary range spreads (the percent difference between the minimum and maximum) within a salary structure as follows:
Administrative/Operative: 40% +
Professional/Management: 50%+
Executives: 50-65% +
Salary Range Minimum and Maximum Formula
To calculate the salary range minimum and maximum from the salary range spread and midpoint (assumes a 75,000 midpoint and a 50% range spread):
Salary Range Overlap
To calculate the salary range overlap:
Here are three examples of salary range overlap:
In the first example, a 0% overlap will not work unless it is a step structure.
In the second example, a 50-60% overlap is moderate. This should be the goal of a typical salary structure.
The last example shows substantial overlap. This would occur if there are too many salary grades or too little difference in market rates between salary grades. Pay equity issues may occur when a substantial range overlap occurs.
Salary Range Penetration
Salary Range Spread
To calculate the salary range spread from the maximum and minimum of a salary range:
To calculate the salary range spread from a minimum percent and maximum percent:
Salary Range Spread on Either Side of Midpoint
To calculate the salary range spread from the minimum to midpoint and the midpoint to maximum:
Shift Differential
A Shift Differential is used to provide supplemental pay to employees who are regularly assigned to work shifts other than the regular day shift (e.g., M-F 8:00 a.m. to 5:00 p.m.). When a company operates with a first, second, and third shift, the second and third shift would typically be eligible for a shift differential (either as a percentage of pay or an amount per hour).
Most companies pay shift differentials to hourly paid employees, whereas less than half of companies pay shift differentials to salaried employees. Hourly employees are paid shift differentials as a flat amount per hour ranging from 50 cents to $1.25 per hour or as a percent of their hourly base rate ranging from 5% to 15%. The higher the job level or the later the shift, the higher the amount or percentage of shift pay. Salaried employees may receive a shift differential, and, when paid, it is typically between 5% and 15% of the salary depending on the shift worked. In lieu of paying shift differentials, some companies compensate employees for working undesirable shifts with additional paid time off.
The updated and expanded Common Compensation Terms & Formulas white paper includes definitions and formulas for the following terms:
ERI SalaryExpert, compiles the most robust salary, cost-of-living, compensation terms and executive compensation data available, with current market data for more than 1,000 industry sectors using the best salary survey data around.
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