How to Determine the Proper Pay Scale for Employees

Paying employees too little or too much can affect your organization’s ability to attract qualified talent and retain valuable employees. Determining the proper pay scale is essential for productivity, and it’s also necessary for cost control. Setting the pay scale too low causes recruiting challenges, and setting the scale too high adds costs to replace employees. If you have the luxury of rewarding employees with high wages, also be prepared to provide a comparable benefits package. Job seekers tend to value benefits over salary when they weigh the pros and cons of joining a new company.

  1. 1.

    Review your job descriptions for accuracy and completeness. Compare them to advertised job postings for similar positions to ensure they contain comparable duties, skills and qualifications. Search similar positions and salary levels on job boards and career pages for professional associations.

  2. 2.

    Assess whether your proposed pay scales are competitive and in line with positions that require similar levels of expertise and experience. Subscribe to employer surveys conducted by compensation and benefit research institutes for up-to-the-minute wage and salary information specific to your locale or industry.

  3. 3.

    Research median wages for jobs using resources such as the U.S. Bureau of Labor Statistics, which produces wage information for thousands of jobs according to occupation, industry and locale. Glean additional information from salary websites such as and

  4. 4.

    Use information from public-sector job databases. The federal government compensation structure is edging toward becoming more competitive with private-sector employment. This means the salary levels used to recruit federal government workers may be helpful in constructing a pay scale for your employees.

  5. 5.

    Obtain historical pay scales for your employees. Review the wages to determine for currency and adjust the scales based on cost of living increases and market conditions. For example, if your pay scale in 2002 for registered nurses indicates starting wages at $50,000, factor in salary changes due to anticipated labor shortages in this occupation. Labor market changes such as shortages in certain occupations and overall low employment rates usually drive salary adjustments upward to increase the ability to recruit qualified applicants from a limited pool.

  6. 6.

    Determine how experience, credentials and tenure affect employees’ wages. Obtain employee census records to discern whether long-term employees are being compensated fairly as a reward for their length of service. Check employee training and development opportunities to decide whether certain jobs should receive higher compensation based on completion of training. For instance, an employee hired for a manager-in-training position may be on a pay scale that reflects salary increases for completing incremental training components. A newly hired manager-in-training might earn $55,000 as a starting salary. Upon the completion of training modules that prepare her for a full manager position, her salary scale would likely show increased pay for every step on the manager’s career track.

  7. 7.

    Discuss proposed salary scales with your compensation and benefits specialist or your company’s finance officer. Explore scenarios concerning appropriate pay versus cost of employee benefits. Make adjustments accordingly, based on your company’s financial footing, the number of workers and employees’ career mobility. Career mobility refers to the pace or the rate of employee promotion and advancement. Calculate the effect of at least three proposed pay scales on the company’s ability to budget certain amounts and still remain a profitable entity.