Mastering the Art (and Science) of Salary Range Modeling
Compensation is an art and a science. Compensation teams need to balance heavily data-based decisions with the unique goals and needs of their company and the understanding of how salary affects employment decisions for current and prospective employees. To strike this balance, Compensation teams have a variety of tools available, including market benchmark data from salary surveys, internal processes, and models to analyze the potential effect of changes to compensation. This last element, called range modeling or salary structure modeling, is a critical and often overlooked element to a compensation team’s success.
What is Range Modeling?
Market pricing and range modeling are interconnected concepts that form the foundation of an effective compensation strategy. Like gears in a well-oiled machine, one contributes to the effectiveness of the other. While market pricing looks externally to determine the fair market value of a job, range modeling channels that external market data to build an internal compensation framework that ensures competitive and equitable pay for employees.
A critical component of range modeling is defining and analyzing salary ranges. Salary ranges provide companies a framework to conceivably reward high performers with merit increases and adapt for market changes all while controlling overall costs. Depending on company size, philosophy, and business objectives, Compensation teams may choose to implement traditional, job based, or market-based ranges.
Why is Range Modeling Important?
As much as compensation is an art, it’s also a science; that’s where range modeling comes in. Compensation leaders need to formulate hypotheses and test out many various scenarios—like different midpoint salaries or range widths—before implementing changes.
This is because even the seemingly small changes in your data can have large implications at both the organizational and employee level. For example, changing employee salaries will have a direct impact on company payroll and Compensation teams need to be prepared to justify that decision.
Being able to test out various models and assess different potential outcomes provides peace of mind knowing that compensation decisions are backed by data.
Range Modeling Use Cases
There are a number of points at which range modeling is critical to Compensation teams. These include standard practices like annual merit or cost-of-living modeling to large, strategic initiatives such as a company-wide overhaul of the compensation structure.
Year-Over-Year Merit Increases
The most common use for range modeling occurs every year. Companies typically have a cyclical process for reassessing employees’ base salaries to determine if they warrant adjustment. Most commonly, this is an annual process, but more companies are looking to off-cycle and semi-annual evaluations to stay ahead of a tight talent market and rapidly shifting economy.
- Solution: Create increase models to evaluate how best to use your annual merit budget. Modeling various options will produce data-backed decisions that promote internal equity and fairness, while managing overall costs.
Updating Pricing Philosophy
Sometimes, a company may find it necessary to update its broader compensation philosophy. This may be the result of challenges around attracting or retaining employees; a merger, acquisition, or sale; or as a result of other market forces.
- Solution: Range modeling in this case enables testing out different hypotheses to find the market-based pricing philosophy that best aligns with company needs and objectives.
Switching Salary Structures
Historically, companies have closely aligned compensation with job architecture through a grade and level-based system. However, salary structures are increasingly becoming more fluid and flexible, with an increased focus on job-based or family-based ranges. Alternatively, as companies grow they may determine they need a more rigorous, grade-based salary structure.
- Solution: Whether you are exploring alternative salary structures or determined to make a change, modeling out the impacts of a change in salary structure is critical. It provides a visualization of the overall financial implications for different structures. Models also help Compensation teams dive deep into cost analysis to see how a change will affect locations, job families, and individual jobs.
Range Modeling With BetterComp
Understanding the importance of range modeling is easy. However, executing—testing out different models and reassessing regularly— can take a tremendous amount of time and energy without the right tool. Today, Compensation pros use BetterComp to save time by modeling ranges effectively and at scale.
Model at Scale
With BetterComp, there’s no need to model hundreds or thousands of jobs separately. Instead, you can break it down into more manageable chunks based on commonalities like geographical locations, groups, job families, and more. What used to take you hours or days can now be done in a matter of minutes.
Compare & Contrast
You can also create as many different models as you want. In each model, you can modify different variables such as range spreads or midpoints by a set percentage or job weighted market rates for any percentile. Given that each model can have a different cost impact on your organization, our tool will give you the flexibility to test out all your “what-ifs” and ultimately choose the best strategy for your team’s needs.
Data & Context
With our user-friendly interface, you will be able to access lots of key information in one place without having to access another tool or even switch tabs. For example, in just one screen, you can compare your modeled ranges to your current ranges, and also access data elements like CompaRatio, number of jobs, number of employees, cost impacts on payroll, and much more.
BetterComp is designed to work for you. This means, regardless of how your salary range data is named or structured, you won't have to make changes to your records, develop calculated fields, or spend any resources making your data fit our structure.
Range modeling through BetterComp will allow you to create, define, and analyze salary ranges that align with your organizational goals. At the same time, you will decrease administrative burden, save time, and feel confident knowing that your decisions are justified through data.