Some metrics are easier to calculate than others. Unfortunately, this one won’t be just tallying up some headcounts. Salary range penetration is going to take a bit of mathematical skill (or a solid excel formula) but is a useful metric.
Salary range penetration tells you where a person’s salary specifically falls within a pay range. Now, you’re probably asking how this differs from compa-ratio, which also identifies where someone’s salary falls on the pay range. Compa-ratio compares the salary just to the midpoint of the salary range and whether it is above or below the midpoint. Where salary range penetration tells you where exactly the salary falls within the range.
To calculate, subtract the range minimum from the salary and divide that by the range minimum subtracted from the range maximum. The result will be a decimal which you multiply by 100 to get the percentage.
Range penetration = (Salary – Range Minimum) / (Range Maximum – Range Minimum)
Example: Quinn’s annual salary is $41,000. The salary range is $37,000 – $52,000
Range penetration = (41,000 – 37,000) / (52,000 – 37,000)
Range penetration = 4,000/15000
Range penetration = .27 or 27%
Quinn’s salary is 27% into her salary range.
Salary range penetration provides a few benefits
It will help to easily identify where people are on the range when planning for merit increases. If someone is at the top end of the salary range, start considering what that will mean for their next increase. Will it put them into the next salary range? Will they need to receive a promotion or title change?
This would be a good time to discuss with the employee what their interests are and potential growth within the company is. You don’t want the person to be surprised that they capped out in the salary range. Then to find out he is not ready to be promoted into the next salary range.
Additionally, promoting people into new titles so they receive the annual increase is not the right approach. It will devalue your culture of training and development if people believe they can just be promoted based on tenure alone. You’ll want to make sure you’re promoting the right people into the right roles based on their skills and interests.
Just like company-ratio, salary range penetration is a good metric for looking at your company’s pay equity. Look at where salaries are falling for individuals in comparable roles. If you have some falling at the top and others at the bottom, start looking into why. If they have similar backgrounds (experience, education, etc.), you have an equity problem.
As always, metrics are useless without the analytics. Metrics are just the starting point, but analytics will help you tell the story. Ask yourself why your metrics are giving those results.