Live from New York: Salary Ranges!
By: Sam Feldman
Everyone has lots of questions, and a fair amount of anxiety about the new salary transparency law in NYC. Should you be worried? Depends on the kind of company you are. Many (maybe even most) companies sincerely want to pay their people fairly and consistently, relative to the job market and to their other employees - because this is better for the long term health and longevity of their business, increasing retention, engagement and quality of work. However, there are many companies who make pay decisions on an individual basis, as needed, without any overall structure or concern for pay equity and fairness. If you’re one of these, you probably should be worried. But if you do aspire to be fair, consistent and market-competitive, then this is a healthy step forward, and can be managed effectively to help ensure safe growth for your business long term.
It’s understandable to be anxious about this change, however - the short term risks and complications are real, and it’s important to do some planning to get yourself and your company in front of this. This advice is meant to help you do that.
The pillars of a strong compensation program are
Consistency, Competitiveness and Communication.
Get Your Ducks in a Row
The first thing to do is take a look at your employee data - are people paid fairly relative to one another?
Even if your company has a full total rewards team or has purchased a large amount of compensation data, we at Gray Scalable would argue that reviewing and comparing current employees is the most critical thing to do. Having internal consistency, intentionality and fairness in compensation decisions has the greatest impact on employees’ feeling of being paid fairly for their work, and will make the roll-out of salary ranges a lot smoother.
The main questions to ask yourself when doing this review: for similar job functions and levels, are employees paid within a healthy range of one another? Are the differences between employees justifiable (performance, experience, recent promotions, etc.)? The litmus test for this is what we call our first principle of compensation: if someone accidentally publicly shared all of your employee salary information, would you feel that you could comfortably defend all decisions that have been made? This should be your first round of any compensation corrections.
If you don’t already have market-backed salary ranges, the salary ranges you create for job descriptions should align with how you are paying people in the same/similar jobs internally. And if the salary ranges you are publishing on job descriptions are significantly higher, you should make market corrections to employees before you go live with them. Yes, this will have an immediate and ongoing payroll cost, but replacing people who are upset at being underpaid is generally much costlier, both in terms of dollars and internal morale.
Make Data-Supported Decisions
The next questions you should be asking yourself are whether employees are paid fairly relative to the market, and relatedly, whether the salary ranges you’re building are competitive relative to similar organizations (employee size, employee types, industry, etc.). In addition to internal equity, having strong market data to guide your decisions is going to be equally important for being able to both attract and retain employees.
There are many data sources out there - large compensation surveys, boutique service providers (such as ourselves!) and a handful of newer compensation benchmark platforms. In addition, your recruiters can also be an excellent source of data - if you’re not already, you should start to collect what you’re hearing from the candidate market as well. And ultimately, the ranges that companies will start to post as part of this law can also be relevant data to include as you iterate on salary ranges.
However, when reviewing any particular dataset, we would urge you to be a cautious consumer, in a few ways. Make sure you are reviewing the strength of the data. Many of the platforms out there have not yet hit the critical mass of data needed to draw strong conclusions: you want to know that once you start cutting the data by level, or job function (or other filters) that you’re not basing your compensation strategy from a small number of examples. In addition, you’ll want to watch out for any dataset that relies entirely or predominantly on self-reported data; that data often doesn’t cleanly control for user error, level, job function or type of company (or wealth of company).
Next, you’ll also want to keep an eye on the relevance of the data you’re choosing: does the data cover a wide enough swath of the market for it to be relevant? If the dataset only has smaller companies participating in the data, you’re not going to have a broad enough understanding of the wider market. If the dataset covers only the companies that pay in the top ten percent of the market, you run a similar risk in the other direction.
All that said, if you’re not yet in a place where you can invest in and analyze a larger market dataset (or hire an outside firm to do that work), as long as you are documenting and pulling from a wide variety of sources you should have enough of a starting point to be directionally correct.
Context is Key
Once you have your salary ranges, communication should roll out from the top down. First, leadership must understand where the data comes from and what choices were made in the salary ranges so they can effectively own and be prepared for questions that come from all levels of the organization.
Next, your recruiters and hiring managers must understand how salary ranges work, as they are the front line for candidate communication. You can be one of the top paying companies in the market but if the people communicating to candidates don’t know how to explain your compensation strategy, employees are still going to feel as though they are paid unfairly.
The salary range itself is going to be based on a number of factors (level, job function, and geography, for example). Where someone falls within a salary range is also going to be based on multiple factors, like where they are in their career relative to the level, the experience they are bringing, making sure they are being paid fairly relative to other employees -- and as they grow at the company, their performance over time will also play a part at where they might fall within a salary range.
We wrote more about this in a post geared toward candidates. Recruiters and hiring managers must be educated to effectively communicate salary decisions and the company's pay practices, to help candidates understand that the company is operating fairly and intentionally.
And while it’s a heavy lift for communication, the ideal next group would be for all managers and employees to have the context around salary ranges. This doesn’t mean every salary range across level or job function needs to be shared with everyone, but we would suggest that people managers are knowledgeable about your compensation principles and practices (and that they have access to the information they need and can answer questions from their team) and then the needed information is shared with the broader employee group. The more people you are able to train to talk about and understand compensation, the better off you will be.
Post the Numbers… with Words!
Once you have established your ranges and equipped your recruiters and hiring managers to discuss them, you need to of course also put them in your job postings.
However, the salary information you post on the job description does not have to be just numbers. We would advise including some standard context on your salary ranges, to help anyone reading the job description understand how salary ranges work at your company.
While each company will be a little different, we would suggest adding language like this to give your salary ranges context:
Our salary ranges are based on paying competitively for our size and industry, and are one part of many compensation, benefits and other reward opportunities we provide.
Individual pay rate decisions are based on a number of factors, including qualifications for the role, experience level, skillset, and balancing internal equity relative to peers at the company. We expect the majority of the candidates who are offered roles at our company to fall healthily throughout the range based on these factors.
One pain point for many startups is that they post a role with expectations at a certain level but are open to candidates a level higher or lower during the search process. You may want to consider this as an add-on:
The range above is for the expectations as laid out in the job description, however we are often open to a wide variety of profiles, and recognize that the person we hire may be less experienced (or more senior) than this job description as posted. If that ends up being the case, the updated salary range will be communicated with you as a candidate.
If you have a geography-based strategy (as most companies do), we do recommend adding something similar to the example above.
The salary range above is for the New York City metro area. As a company, we have a location based strategy, which means the salary range could be lower or higher than this if the role is hired in another location.
Adhering to the salary transparency law may feel daunting, but once you establish your salary ranges you will see long-term positive effects - you’ll be able to open roles and decide raises in a straightforward and fair way, communicate with employees consistently, and plan for scale safely.
Gray Scalable is a team of recruiting and HR professionals who help companies grow and evolve their people practices to match the standards of the world’s leading tech companies. From pre-Series A to post-IPO companies, we help build amazing teams and we develop customized programs that engage your people and advance your culture.