Why Traditional Salary Ranges May Not Be Relevant in Today's Economy

Why Traditional Salary Ranges May Not Be Relevant in Today's Economy
by:  Ann Bares on January 23, 2013, 10:15 AM

Our salary ranges are not serving us as well as they once may have.

We know it. Unhappily, most employees know it, too.

My Compensation Cafe colleague Margaret O'Hanlon called attention to this reality last week in her post Do You Know What Your Salary Ranges Mean?

Margaret notes that the traditional salary range model, which communicates the essence of the deal we offer employees, no longer delivers on its purported promises.

This is tough to deny and not hard to understand. The salary range architecture most organizations use today gained much of its popularity in a period when base pay was moving at a much faster pace (e.g., 8-10 percent annually in the late 1970′s and early 1980′s compared to the tepid 3 percent of today).

The key issue about salary ranges

But what I found particularly interesting was the debate that popped up in the comment stream to Margaret’s post. At its essence, as I read it, the central question raised was this:

Do – should – salary ranges still reflect the cornerstone of the employment deal in that they outline and communicate the rules for setting and growing base pay?

OR

Are they an antiquated theoretical construct whose time has come and gone, an idea no longer in step with the realities of the real world?

My thoughts? Yes … and yes.

I’ve had the chance to work with many organizations who don’t have a formal salary structure, either smaller organizations yet to put in place any pay rules and policies, or, more established businesses who have (at some point) ditched their structures in an attempt to foster more “flexibility.” What I’ve found, more times than not, is that salary decisions in these places are all over the map, with little rhyme or reason, and often made in response to pressure (employee complaints or implicit/explicit threats of leaving).

And everyone knows it. Especially the employees.

Our salary management system may be out of step

With salary dollars being in scarce supply today and likely for the foreseeable future, having a salary structure in place ensures that there is a “median” and a set of guard rails to prevent pay decisions from falling too far off the road. And perhaps more importantly, and to Margaret’s point, having a salary structure in place typically gives employees at least a minimal amount of assurance that there are rules which are followed and that salary decisions aren’t based entirely on whim, favoritism or discrimination.

And yet, clearly, our long-held model of base salary management is falling out of step with business and economic reality.

Where do we go from here? I don’t believe that ditching structure entirely is an answer.

Broadbanding has taught us that less is not necessarily more (or is it that bigger isn’t necessarily better?). Tighter salary budgets, if that is our longer-term reality, might call for tighter ranges,  but will these fly in today’s fast-paced and fluid reality?

Do we move toward a newfangled mash-up of pay steps and ranges? Does this issue portend the long-awaited, often-touted death of the job and the corresponding advent of person-based pay?

What are you seeing, and what’s your take?

This was originally published on Ann Bares’ Compensation Force Blog

Ann Bares is the Managing Partner of Altura Consulting Group.  She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems. Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University.