Wednesday, October 19, 2011

How Companies Evaluate a Salary Range

Have you ever wondered how companies determine a salary or pay range for a particular job? Or why a salary for the same job title varies from company to company?

For starters, companies in the United States must adhere to various Federal employment laws and regulations instituted by the U.S. Department of Labor. For those interested in researching these, go to In addition to governmental guidelines, companies consider other criteria when evaluating salary ranges.

Placing the Focus on Job Description, Not Title

It is a common misconception that a job title and accompanying salary at one company should translate similarly at other companies. In real life, salaries can vary significantly between companies. For example, a marketing and sales director could draw an annual salary from $50,000 to $150,000 or higher. The main reason for a variance like this is that the job responsibilities can be considerably different at each company. Therefore, when companies evaluate a salary range, they focus on the job description that details the work responsibilities and functions—not the title.

Other Factors Companies Consider

In general and simplified, owners and/or managers set salary ranges based on how they value the job and how much the company can afford. The goal is to attract top job candidates while minimizing overhead expenses.

Every company goes through a process in setting salaries; typically, the larger the organization, the more extensive the process of classifying jobs and evaluating how they interrelate. Below are a few key factors that many companies consider when setting salary ranges.

  • Level of education, expertise, skill, and experience required to perform the job
  • What the market is willing to bear, particularly local and regional markets
  • The size of the talent pool; for example, is the market flooded with qualified people?
  • Competitive and industry standards for the same or similar job functions
  • The benefits package: salary is often just one part of that package. For example, in addition to salary, a company may offer a comprehensive benefits package, including health care, a 401k program, vacation time, flexible work arrangements, and other appealing benefits.

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