Basic Wage and Salary Ranges

Steven Cesare, Ph.D.

A business owner from Minnesota called me the other day to talk about his company’s compensation plan to accommodate the difficult labor market, increased wage expectations, and desired employee retention. Like many companies, this business owner earnestly wants to remain competitive with wages, necessary to satisfy customer demands, and miracle of miracles, still make a profit.

Our lengthy conversation was practical in scope. By that I mean, while discussed, we did not devote inordinate emphasis on ethereal issues like the company’s compensation philosophy (e.g., match, lag, lead), scholastic calculations (e.g., wage formulas, job evaluation methods, compensation mix), or well-established fundamentals (e.g., job descriptions, job families, benchmark jobs). Instead, we simply focused attention on the basic framework for developing wage and salary ranges.

No time for a Dissertation; just the basics.

The 40-50-60 Rule is commonly understood information related to wage and salary ranges. “In general,” the wage range (i.e., the distance from the minimum pay rate to the maximum pay rate) for a non-exempt job classification (e.g., Laborer, Foreman, Administrative Assistant) is typically 40%. “In general,” the wage range for an exempt job classification (e.g., Account Manager, Field Supervisor, Office Manager) is typically 50%. “In general,” the wage range for an executive job classification (e.g., Vice President, CFO, President) is typically 60%.

Regarding non-exempt positions, here is the salary range model the business owner and I developed:

Minimum Mid-Point Maximum

Construction Crew Member: $14.00 $17.50 $19.60
Construction Crew Leader: $16.67 $21.00 $23.34
Construction Foreman: $19.84 $24.50 $27.78

First, the listed positions are hierarchically related, consistent with the company’s career ladder. A similar model would be followed for Maintenance, Mow Crew, or Irrigation job families.

The 40% Rule posits the Maximum Wage Rate for a non-exempt position should be 40% greater than the Minimum Wage Rate for that same position. In specific, $14.00 multiplied by 1.4 equals $19.60. Thus, the company should not pay any Construction Crew Member less than $14.00 per hour, nor should it pay any Construction Crew Member more than $19.60 per hour.

Interestingly, a basic tenet holds that the Minimum Wage Rate for the next hierarchical position should be 85% of the Maximum Wage Rate for the previous lower position. In specific, $19.60 multiplied by .85 equals $16.67. Keep in mind, these are general rules of thumb, not legal requirements, GAAP edicts, or stone tablet etchings.

The 50% Rule conveys the Maximum Wage Rate for an exempt employee should be 50% greater than the entry Minimum Wage Rate. Thus, a hypothetical salary range for an Account Manager should be $60,000 – $90,000 (i.e., $60,000 multiplied by 1.5 equals $90,000), or for an Office Manager the salary range could be $45,000 – $67,500.

The 60% Rule illustrates the Maximum Wage Rate for a company executive should be 60% greater than its Minimum Wage Rate. Thus, a hypothetical salary range for a General Manager should be $80,000 – $128,000 (i.e., $80,000 multiplied by 1.6 equals $128,000).

While endless complexities certainly exist, these practical guidelines are intended to promote financial restraint consistent with the Company’s annual budget, link pay with advancement within the company’s career ladder, and simplify executive-level decision making.