The salary range defines the amounts above and below the base which could be paid with various levels of performance. A typical salary range is 10 to 20 percent above and below the base compensation level. Formally analyzing the wage structure will help prevent perceived inequities within the organization and will provide a paper trail for documenting compliance to federal anti-discrimination regulations. In setting the compensation structure a list of the major positions should be developed. For each position, the factors affecting the wage rate such as responsibility, physical demands, skills and education required, supervisory responsibilities, and working conditions should be listed.
Some managers develop a formal weighing system which assigns points to each job factor.
Other managers summarize the factors and then make a subjective decision as to the compensation level for each position. It is important to periodically review the compensation structure. Inflation, competitive factors in the job market, and changes in job structures and qualifications may make it necessary to update the compensation structure. In designing an incentive system, the manager must decide what portion of the pay, if any, should be based on individual or group performance. In order to be effective, any incentive system requires that a good system of performance evaluation be in place.