What is range maximum in compensation?
Range maximum is the highest rate you are willing to pay for a role. The range maximum can be reflected as a fixed amount or as a ratio between the range minimum and range maximum.
There are various reasons an employee could be paid at the maximum of the range:
- The employee is classified as HiPo (High Potential) and displays behaviors and skills required to rise into critical positions. This generally constitutes only 5% of a company.
- The employee has spent a long time at the company and is seen as a highly valuable asset. Losing the employee will result in detrimental business outcomes.
How to establish range maximum
There are various ways to determine the maximum range for a position. For example, many salary surveys by companies such as PayScale, Michael Page, and Glassdoor reflect the minimum, mid-point, and maximum for various roles and industries.
Once you've put a job in a certain salary range based on your findings, you can decide if the job level should be bumped up and possibly get a higher ceiling than at first glance.
You can also calculate your maximum pay based on the range spread.
Findings by the Economic Research Institute use the following spreads for these industries/jobs:
- Administration /Operations: 40% +
- Professional/Management: 50% +
- Executives: 50-65% +
The key is to be consistent in your implementation so that the range maximum can be accurately calculated.
For example, imagine a Professional/Management role with a range spread of 50%. Let’s say the midpoint is $70,000. To find the maximum, use the minimum and multiply it by 1.00 + ½.
Following this calculation, the range maximum would be $84,000.
This formula can be used to establish the range maximum and minimum whenever there is accurate market data available based on the mid-point of a salary.