How to set a pay-scale for employees?

What factors should employers consider while setting the pay-scale for their employees? Read on to find out…

Employers in the present world are switching over to various technology-friendly means of recruiting candidates and crafting their on-boarding. With remote work culture taking the upper hand, everything is done online. However, a challenge that employers face to date is how to establish a proper pay-scale for their employees. Establishing the appropriate payment-scale for an employee takes a lot more into consideration than one might think. The subject of salary is a top concern for potential hires and employers. As a business owner or facilitator of salaries, having a payment scale for reference when determining an employee’s compensation allows for smoother fiscal transactions as well as clear communication within an organization. Here’s a blog on how to set a pay-scale for employees.

In most organizations, salaries are determined by mapping roles and job descriptions with similar organizations (competitors) through third-party compensation and benchmarking service. A typical job is broken down into its responsibilities, criticality, complexity, and market availability to name a few crucial factors. Based on these factors, the range for a job is arrived upon. Every organization has its compensation philosophy based on how it wants to position itself in the market with reference to pay, the companies that it considers its competitors, the talent that it considers critical, and therefore be more flexible with pay.

Here are certain factors that every employer can take into account while deciding how to set a pay-scale for their employees.

Assessing the Position

It is important to assess the relative position of both the employers and the employees with respect to other companies and their employees in order to set a reference.

Organization’s reputation

An organization with a great reputation may be able to attract the right talent even at the lower end of the range. Similarly, an organization that’s not respected in the market may not be able to attract the right talent even beyond the range.

Experience and Education

Although this may not be explicitly stated, the number of years of experience and education, especially if candidates have graduated from an elite institution, can have an influence on the starting salary. However, these could also make them overqualified for a job. Proper attention should be paid to it.


This goes with respect to both the company and the employee. “Pay for performance” is probably the most commonly heard term, when salary is discussed. If employees are exceptional performers, their increment will take that into consideration and get them closer to the higher end of the range, while a low performer may not see any increment. Similarly, if the company is doing well and has a profit-sharing model, employees may reap benefits from the company’s performance.

Wages Research for setting reference

A key component to determining a salary scale is offering competitive payment. By researching the median pay for a given position, you can forecast what an employee will expect to make. Researching wages can also indicate whether or not your business will be able to sustain the salary for the position you’re seeking to hire while providing valuable insight about how qualifications, experience levels, and education influence salary.

Supply and Demand of Talent

When unemployment is high, skilled people are available because of job loss and the economic downturn. Currently, however, the economic reality is that you may have to hire good people for more money than in the past — because things are brighter. These days, although, the situation is reversed because of the pandemic.

If a particular city has an exploding number of engineers, then the role does not need to be hired at a premium. The talent is easily available and since the supply is more than the demand, the salary ranges could be very wide. The opposite is true too for a position that is on high demand but on low supply.

Geographical location

The location you are posted in makes a lot of difference to how much you are paid. Salaries for the same position will vary across different towns and cities because they take into account differences in the cost of living. Overpay and you risk throwing your salary range off-kilter. It becomes economically unsustainable and unfair to longer-term employees.

If you try to underpay, even if an employee accepts a job, he or she may never feel valued by your organization and will continue to job search, using your company as a resting place until the right offer arrives.

Determine a Maximum and a Minimum

Cost of living

This has nothing to do with the employee performance or the company’s performance — this is just how the market has moved. This kind of salary adjustment is called the cost of living adjustment or COLA. The increments are to be in line with the growing inflation and compensating candidates to maintain the current lifestyle.


In order to set a pay-scale for employees, companies must offer salaries on par with industry standards. With inflation, the purchasing power of salaries is on a constant decline. In order to attract new employees, companies must ensure that salaries are adjusted for inflation so that purchasing power increases or at least remains the same.

Include Benefits package into the salary package

An organization that offers better than average benefits may pay less salary and still have motivated, contributing employees. If your health plan fees go up and you continue to pay the cost, this is the same as money put in your employees’ pockets. Employers can offer a number of other benefits to employees such as Provident Fund, Retirement Benefits, company shares, etc.

The range of benefits you offer, and their cost to the employer, is a critical component of any salary approach. The biggest mistake organizations make is the failure to communicate the value of the benefits offered.

Be open to negotiation

Though it can sometimes be uncomfortable, you should expect employees to inquire about their salaries and try to negotiate. Employees who can respectfully assert their worth often demonstrate desirable negotiation and professional qualities that will likely benefit your business. To have employees who routinely perform exceptional work and strive to do their best, it’s important that they feel sufficiently compensated for their worth and comfortable discussing their growth. To set a pay-scale for employees, being flexible during negotiations and meeting the employee halfway will more often than not result in gratitude and appreciation that inspires above-average performance and employee loyalty.

For more interesting blogs on Applicant Tracking System and current happenings in the HR, world follow us here and onLinkedIn!

Start For Free!

Suchismita Panda