Defining the market pay range for a job can be defined with administrative guidelines to determine the proper placement of employee pay within the range. For example, assume a company is using a competitive strategy to target the market median pay level of $52,000. The range minimum at the 25th percentile is $45,000 and the maximum is $65,000 at 75 percent.

Employers should split the pay range into three zones:

• Needs Improvement: New to job, little to no direct experience, on the learning curve, knowledge/skills still developing. This is the pay zone for less experienced employees. The period of time that an individual would be appropriately paid in this zone will vary by the nature of the job and the employee’s skill and performance progression.
• Successful: Meets standard job criteria, consistently exhibits desired competencies to perform successfully, performs most aspects of the job effectively and independently. Achieving and sustaining this level of performance is considered the norm for qualified individuals and will likely be the most heavily populated zone in multi-incumbent jobs.
• Role Model: Expert in all job criteria, has deep knowledge of own area as well as the larger organization, of significant value to the organization, serves as expert resource/role model. Achieving this level requires significant, sustained contributions to the company, and thus is not easily achieved by most employees.

In the aforementioned example of targeting the market median pay level of $52,000, the employer may recruit the candidate who demonstrated the qualifications to be successful in the job by executing a decision to offer a starting salary that falls within the second zone of the range, perhaps $49,000, which results in a comparatio of 94%. Moreover, employees would also use such guidelines to place individuals’ pay appropriately within the range over time to maintain internal and external equity.

Companies must note that employee capability is not the same thing as performance. Someone who is not yet successful in fulfilling the job may still be learning some of the basic skills, especially after a promotion. Yet the employee’s performance may exceed the manager’s expectations. Poor performers fall short of fulfilling the manager’s expectations for successful performance of the job, and companies do not typically retain such employees.

As employees become successful in fulfilling their job, it is important to place their pay into the “market target zone.” Otherwise their pay will stagnate and they may become unmotivated or seek employment from competitors for recognition and rewards.