How to Set the Pay Range for Any Position

When you make a new hire, how do you decide on the rate of pay? If you’re like most managers or practice owners, the answer is pretty simple: You consider the skills and experience required, and come up with a number from there. But figuring out the best pay range for a given position is not always so straightforward.

In fact, setting pay ranges is an HR specialty unto itself. There are HR nerds holed up in the basements of major employers in our towns whose job it is to make sure that their university, hospital, or financial institution is competitive but not overpaying for the talent they employ. They use multiple tools and databases and often have entire teams crunching the numbers. We, as smaller employers, don’t have that luxury—but we can still take advantage of their HR pro techniques.

How do you decide how much to pay? Here are some of the approaches and habits many of us have adopted over the years:

• You may make an offer based on what you’ve paid employees before. Perhaps you are confident in what the rate should be because you often hire for the position you seek to fill, or you’ve hired for it recently.
• Or, you might ask around, do some research online, make your best guess, and leave some wiggle room.
• Then again, you might decide on a pay rate based on what you think you can afford to pay.
• You might low-ball your offer in an attempt to get someone for the least amount.
• Or, maybe you use a “wait and see” scenario, work off of your prospective hire’s demand, and negotiate from there.

I would bet your answer is probably going to be some combination of all the above, right? And there is nothing wrong with these approaches. That said, in this article, I am going to make the case for moving from a single rate of pay to creating a pay range for each position.

Set a Pay Range, Not Just a Pay Rate

Here is something important to recognize. Setting a pay range rather than a specific number—say, “$14 to $18 dollars, DOE,” rather than just saying “pay is $14/hr”—greatly increases the number of prospects who will look at and respond to your job postings. It’s math. When you put out a single number, you are eliminating an entire group of people who need to make just two or three dollars an hour more than your bottom offer. You are also likely eliminating a few of your best potential candidates, without realizing that they bring skills that can more than pay for the extra amount they need.

In my own company, and based on providing guidance to lots of managers and practice owners facing this same issue, I find that it’s best to establish and publicize a range of pay in the job ad for your open position. This approach helps you in several critical ways:

1. It sets expectations. If you include the range of pay when you first advertise the job opening, that action informs candidates of what is available and begins to set expectations for those who choose to apply. If you’ve published that the rate for the job in question is $16 to $23 per hour DOE, most candidates will already know that an attempt to start negotiations at $27 per hour is not going to work. This means you or your manager waste little or no time on candidates who want a lot more than you are willing to pay. (It’s very frustrating to spend time interviewing someone you really like, only to find out that they just moved from California and can’t get their head wrapped around the fact that 30% lower rent rates correspond with 30% lower pay rates.)
2. It encourages you to keep your range up to date, and enables you to provide income growth potential—called an internal pay grade—for high performers. Setting and advertising lower and upper pay parameters forces you to consider the least a minimally qualified candidate is likely to accept, as well as the most you are willing or able to pay your ideal hire. This is important because it encourages you to confirm that those rates are competitive enough to attract high quality candidates. Plus, advertising your range can make great candidates more likely to accept your offers. For example, we have a position here that pays between 48K and 65K, and to earn their way into the upper end of that range, we have a set of accomplishments and parameters employees are encouraged to strive toward and attain.
3. Most important, setting a pay range makes it possible for you to hire difference-makers. I often hear and give the following guidance: Focus on hiring someone who has the potential to be great. For some positions, they may not even have direct experience working in healthcare, but what you’re really looking for is someone with just the right attitude: bright, experienced in working with the public, willing to be coached, curious, and excited to work for you, for example. By setting a pay range, you create the expectation that a great fit with less experience will have to start at a lower range until they prove they are the right person for the position. You may also find a candidate with lots of experience who can be a difference-maker, in which case you might have to hire toward the upper end of your range. This person might come in and tell you things about your patient management software that even you did not know—or in some other way, they quickly show you that your decision to hire them will have a great return. Difference-makers easily make up for the fact that you must offer more to attract them.

So, if a pay range is the way to go, the trick is to figure out what it should be. This isn’t always easy, but if you explore a little, you can figure it out. Here are some options.

Do Some Research: What Pay Range is Appropriate, Reasonable, and Affordable?

First, mine the data you’ve got at hand. The employment history section of your application form should include spaces for applicants to record their previous starting and ending salaries. Except in Massachusetts where the law now prohibits salary history inquiries until after a job offer is made, employers can generally ask candidates to reveal their salary history. Take that information with a grain of salt, however. What a person made before is not always a great indicator of what they should be paid. Plus, be wary of perpetuating discriminatory wage discrepancies based on gender. Use salary history information as one consideration among many in choosing what to put in a job offer, and follow up any assumptions by asking the candidate directly what their salary needs are.

If you don’t want to ask candidates directly, you can also call their most recent employer. Most past employers will provide this kind of factual information. Of course, be mindful that you never want to contact a current employer of an employee who is still working there without their advance consent.

Use the power of the internet. The US Bureau of Labor Statistics has a wealth of wage information for most healthcare positions, which can be narrowed down by locale. Median pay information can be a year or so out of date, but it is still a good starting point. From there, you can always go to job search engines (e.g., jobing.com, etc.) in your area to see what your competitors are offering where wages are published. Various online “salary wizard” tools may also help you learn typical wages for dental or medical positions in your area. However, I personally have found them to be unreliable, as they often depend on employees stumbling upon them and filling out a survey about pay.

You may even find you know someone within your industry—a practice management coach, trainer, or rep, say—who keeps a running survey of going rates in your area for their clients’ benefit. Professional networking groups at the local and national levels also provide a wealth of peer support, including insight as to what members in similar situations to yours are paying employees.

If you’re having trouble narrowing down a workable and appropriate pay range, keep in mind that you need not stay within your own medical or dental specialty. Instead, if you’re hiring an office manager, for example, concentrate on finding out what good managers get paid in your area.

One last word of warning: Large corporations already know the benefits of offering a range of pay, and they tend to offer more. You can compete by highlighting other appealing benefits, such as “woman-owned,” “4-day workweek,” “nurturing small-office culture.” Don’t try to compete on wages if it’s just not doable, but understand that if you are $5 below the market rate, you are going to get $5-below-market-rate candidates. If your range is too low, you may miss out entirely on good candidates.

Great Negotiators “Anchor” the Negotiation

As for negotiating with your prospective employee, here is the number one rule. Ask your candidate how much they need, then put your offer on the table, and ask how that works for them. Your offer will then anchor subsequent negotiations, keeping them closer to your preferred numbers. If they prefer to not give you a number, then go with your lowest offer, or what you think is the best lowest offer based on your pay range and their experience.

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace counsel about a specific issue with an attorney or HR expert. This material is meant to provide information that is believed to be current as of the date of this post.