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Salary range pay index


It measures the level of equity for the compensation package of each employee in correlation with the salary band.



Calculation steps:

  1. choose the reward element (Basic, Fixed, Total Cash)
  2. sort employees by grade/level/category
  3. for each employee find the comparison salary band elements (min, mid, max)
  4. take the reward element for each employee and compare it (divide it) to the value of comparison (salary band mid) . Express the value as a percentage
  5. for each employee you will have a Comparison Ratio
  6. sort employees into 3 categories: below salary band, within salary band, above salary band


Example:

Reward element: Basic salary

Employee Basic salary: 13,200

Salary band middle: 10,000

Salary band minimum: 8,000

Salary band maximum: 12,000


Competitiveness index = (13,200 / 10,000) x 100 = 132%

The index for this employee is above the maximum so the index is placed in the "above salary band" category.


Usually companies update their policies by using the median to create their middle point of the salary band.

The median is the most stable element in a salary survey. If the company wants to be competitive they use the median and add a raise percentage (example: median + 10%).


As a good practice, if the salary band is split into thirds you should have:

  1. 20% of the employees in the upper third - all the high performers
  2. 60% of employees in the middle third - on target performance
  3. 20% of employees in the lower third - employees in development or low performers


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