Posted by: christopherfeld | April 3, 2011

Performing a salary range simulation

I did a great salary range simulation for my advanced HR class. I prepared information regarding the salary range of a new safety officer five years after employment.

Below, I will describe how I determined the salary range, salary range projections over 5 years, and projected salary payouts.

Determining the Salary Range

The Safety Officer position’s salary range is competitive to comparable positions. In order to support the city’s safety strategy is to attract, develop, and retain top safety officers, our I offered the position a competitive salary range. To derive this range, I performed market research. I based my market research on safety officer positions with similar duties and experience in cities of comparable size within our state. Also, shifts in supply and demand influenced salary levels, and these factors are incorporated into the salary structure.

The salary range structure is determined by a position-in-range and percent of midpoint methodology. This range is broken into thirds and consists of the first salary range or the minimum bottom range from the midpoint. The second range consists of salaries at the midpoint, and the third salary range in the upper third is at the maximum salary range. The range minimum represents the lowest salary available for this position, and for an incumbent that does not possess all the skills, education, or experience necessary to perform the job. The midpoint range represents the going rate for an incumbent that meets all skills, education, and experience necessary to perform the job. The maximum range is the maximum salary available for this position, and it is reserved for highest performing employees.

The range of thirds can be seen as a percent of midpoint (comp-ratio). The first range occurs at 80%. The second range is the midpoint at 100%, and the third range or the maximum is at 120%. Thus for a salary at 90% from the midpoint, it would require a 10% increase to reach the midpoint. This range of thirds methodology is described in the chart below.

Percent of Midpoint (Comp-ratio)
Range Minimum Range Midpoint Range Maximum
Range Thirds 1st 2nd 3rd
% of Midpoint 80% 93% 100% 107% 120%

Applying this methodology for the safety officer position at $15.10 today, I found that the minimum would be $12.40 or 80% from the midpoint. The midpoint would be $15.50, and the maximum would be $18.60 or 120% from the maximum. See the chart below for the range.

Safety Officer Salary Range
Minimum Midpoint Maximum
$12.40 $15.50 $18.60

 

Salary Range Increase Projections in Five Years

The chart below details salary range projections for the Safety Officer over the next five years. As it shows a number of market assumptions accounted for the variance in pay increases. For instance, year one was based on setting a competitive salary range. For year 2 I found that there was a high demand for safety officers in the state. Thus, I raised the range by 3% in order to keep the pay competitive.

Salary Range Increases for the 

Safety Officer Position (5 Year Projections)

Year Minimum Midpoint Maximum Market Assumptions Range Movement
1 $12.40 $15.50 $18.60 Competitive Salary Range 0.0%
2 $12.77 $15.97 $19.16 High demand 3.0%
3 $13.16 $16.44 $19.73 Medium-Low Demand 1.0%
4 $13.55 $16.94 $20.32 Medium-Low Demand 1.0%
5 $13.96 $17.45 $20.93 Low Demand 0.5%

The chart below illustrates the amount that the salary was increased per year based on the range movement (listed above). Following with the example from year 2, the minimum range was determined by multiplying year 1’s $12.40 minimum pay by the 3% range movement. The product or $0.37 was added to the minimum pay amount of $12.40 to result in $12.77 for that minimum. This formula was then followed for each year, and for the minimum, midpoint, and maximum values.

Salary Range Increases
Year Minimum x  Range Midpoint x Range Max x Range
1 $0.00 $0.00 $0.00
2 $0.37 $0.47 $0.56
3 $0.38 $0.48 $0.57
4 $0.39 $0.49 $0.59
5 $0.41 $0.51 $0.61

Projected Salary Payout

City employees receive salary increases based on their performance. The performance management system consists of an annual review. Based on the review of the employee’s performance, the manager rates the employee based on a five-point scale. Returning to the concept of range of thirds, level four employees continually exceed requirements and will be compensated 1-10% above the market rate or the (101-110% comp-ratio).

Performance Management Rating System
Level 5 107 – 120 % Exceptional
Level 4 101 – 110% Exceeds Requirements
Level 3 93 – 107% Fully Satisfactory
Level 2 80 – 93% Acceptable
Level 1 To level 2 or out Not Acceptable

Payout for employees based on their merit would be based on the guidelines set below.

Merit Increase Guidelines
Employees in the lower third range Employees in the middle third range Employees in the high third range
Level 5 Exceptional 5-6% 4-5% 3-4%
Level 4 Exceeds Requirements 4-5% 3-4% 2-3%
Level 3 Fully Satisfactory 3-4% 2-3% 1-2%
Level 2 Acceptable 2-3% 1-2% 0
Level 1 Not Acceptable To minimum or out 0 0

 

Thus, the final expected salary on the fifth year could be derived from assumptions related to an employee’s learning curve and expected performance in the Safety Officer role. I assume that the employee will spend two years at level three, performing fully satisfactory work. Then they will perform at level 4 by exceeding requirements. Lastly, they will spend one year at level 5 by performing exceptional work.

Following the expected performance assumption described above, the chart below details expected payouts (accounting for salary range increases over each year). Within each level, there is a 2% discretionary variation of what can be paid out to employees for merit. The chart below shows the lowest percentage and the highest within each performance category. Also, it shows total payouts including the five-year total payout within each third range.

Lowest Percentage Merit Payouts Highest Percentage Merit Payouts
Year min mid max Year min mid max
1 $12.77 $15.81 $18.79 1 $13.14 $16.28 $19.34
2 $13.16 $16.13 $18.97 2 $13.41 $16.60 $19.73
3 $13.68 $16.61 $19.35 3 $13.68 $16.94 $20.13
4 $14.23 $17.11 $19.74 4 $13.96 $17.28 $20.32
5 $14.94 $17.79 $20.33 5 $13.96 $17.45 $20.93
Totals $68.78 $83.45 $97.19 Totals $68.15 $84.54 $100.46
5 Year Total Payout $143,056.58 $173,569.94 $202,147.33 5 Year Total Payout $141,749.06 $175,837.52 $208,963.71
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