Salary Administration Guidelines

Introduction: How to Use This Template

 Complete this template to provide a general overview of your organization’s salary structure.
 Write in a manner that will resonate with the audience of this template, not compensation
professionals. Reflect the language of the organization in the content of this template.
 Keep it simple – more detailed information can be provided via other resources.
 To use this template, simply replace the text in dark grey with information customized to your
organization. When complete, delete all introductory or example text and convert all remaining
text to black prior to distribution.

Table of Contents
Salary Administration Guidelines ............................................................................................... 1
Introduction: How to Use This Template..................................................................................... 1
Introduction ............................................................................................................................ 2
Effective Date ..................................................................................................................... 2
Eligibility .............................................................................................................................. 2
Legislative Requirements .................................................................................................... 2
Authority & Responsibility ................................................................................................... 2
Confidentiality ..................................................................................................................... 2
Training & Support .............................................................................................................. 3
Definitions: Pay Band, Compa-Ratio, Range Penetration ....................................................... 3
1. Pay Band ........................................................................................................................ 3
2. Compa-Ratio ................................................................................................................... 3
3. Range Penetration .......................................................................................................... 4
Positioning in the Pay Band .................................................................................................... 4
1. New Hires ....................................................................................................................... 4
2. Inactive Employees ......................................................................................................... 5
3. Active Employees ........................................................................................................... 5
5. Demotions....................................................................................................................... 6
6. Job Re-evaluation ........................................................................................................... 6
7. Pay for Performance ....................................................................................................... 7
8. Salaries Outside of the Relevant Pay Band ..................................................................... 7
[Appendix] .................................................................................................................................. 7

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Introduction
Use your organization’s compensation philosophy to customize the following:

[Organization name] is committed to providing employees with an internally equitable and externally
competitive salary structure. Several resources are used to develop and maintain the salary structure,
including [insert resources used, e.g. market data, point factor job evaluation, salaries of similar positions
in the industry]. [Organization name] is [an equitable or equal opportunity employer] and fairly
compensates employees regardless of [race, color, sex, national origin, disability, marital status, political
opinions, political affiliations, veteran status, sexual orientation or age, etc.].

The salary administration guidelines aim to:

 Provide managers with a tool for compensation management.

 Support managers with the attraction and retention of qualified employees.
 Establish compensation programs that align with organizational objectives and adhere to
legislative requirements.

Effective Date
These salary administration guidelines are effective [date]. The content will be reviewed each year to
ensure that employees continue to be paid fair, equitable, and competitive salaries.

Eligibility
These guidelines apply to [all regular full-time salaried employees], unless otherwise stated in their
individual employment contracts or collective agreements.

Legislative Requirements
All salary decisions must be made in accordance with the laws of [state or province] and [country]. [As
salary administration has an impact on financial reporting, it is essential to maintain the integrity of all data
and that all decisions are documented to comply with the 2002 Sarbanes-Oxley Act.]

Authority & Responsibility

All salary decisions must be approved by the [department head] and the [compensation manager]. Any
salary decisions that fall outside of these guidelines must be approved by [the Chief Human Resources
Officer or the Board of Directors]. All salary decisions must be approved before notifying the employee
about the changes.

Confidentiality
An individual’s exact rate of compensation is private and confidential [organization name] information.
[Organization name] will not release this information to any third party without written approval from the
employee.

Only an employee’s direct manager and members of the [HR, Finance, Payroll] departments are allowed
access to an individual employee’s compensation records, and that access must be for organizational
purposes only. Accessing, or attempts to access, compensation by any non-authorized employees will be
subject to discipline up to and including termination of employment.

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Training & Support
All [managers, supervisors, and executive members] involved with setting salaries are required to
complete [name of training course] provided by [Human Resources] upon becoming a people manager or
as required when salary administration guidelines change. This is to ensure consistency in the
administration practices across the organization.

For additional compensation resources, please visit [link(s) to additional resources].

If you require further guidance, please contact [Name, Title] at [contact information].

Definitions: Pay Band, Compa-Ratio, Range Penetration

1. Pay Band
A pay band provides a frame for setting salaries for employees. A pay band consists of a minimum,
midpoint, and maximum pay rate. The midpoint of the range typically reflects the organization’s target
market position strategy. Salary adjustments should be made within the pay band. Any exceptions must
be reviewed with Human Resources and approved by [the affected employee’s Vice President and the
Chief Human Resources Officer].

2. Compa-Ratio
The compa-ratio measures an individual’s salary as a percentage of the midpoint, which tells you how
closely it is aligned to the organization’s strategic salary position for the role.

A compa-ratio of 100% indicates that the employee is currently paid at the midpoint.

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For an employee with a salary of $38,000, on a pay band with a minimum of $20,000, a midpoint of
$40,000, and a maximum of $60,000, the compa-ratio would be calculated as follows:

[$38,000 / $40,000] × 100% = 95% compa-ratio

3. Range Penetration
Range penetration indicates how far an individual’s salary has progressed through the pay band.

If an employee’s range penetration is 50%, this indicates they are currently in the middle of the pay band.

Using the same example as above, range penetration would be calculated as follows:

[$38,000 - $20,000 / $60,000 - $20,000] × 100% = 45% range penetration

Positioning in the Pay Band

1. New Hires
In determining the salary for new hires, review the following factors:

 Qualifications and experience of the candidate.

 Salaries and experience of the employees within the same role and other roles within the same
pay band.

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[Insert organization’s typical hiring rate (as a compa-ratio) and exceptions for hiring above the typical
ratio.]

2. Inactive Employees
Inactive employees are employees on approved leaves. When the employee returns to work, salary
adjustments need to be initiated to ensure the employee’s salary is internally equitable and externally
competitive, as needed.

3. Active Employees
For existing employees, review the following factors when determining salaries:

 Current performance rating

 Current salary
 Compa-ratio and range penetration
 Salaries, compa-ratios, and range penetration of similar jobs within the organization
 Salary budget

Within Pay Band Changes

A) Lateral moves

Salary increases of up to [percent] may be awarded to encourage employees to accept lateral job moves
(i.e. moving to a different job within the same pay band).

B) Temporary special assignments

Temporary salary increases of up to [percent] may be awarded to encourage employees to accept

temporary special assignments. After the assignment ends, the employee will return to their original
salary. If the assignment is less than two months, no temporary increase will be awarded and instead the
temporary special assignment will be taken into account when determining any regular salary increases.

C) Special projects

Special projects, when an employee has taken on a significant project or additional responsibility within
their same position, may be awarded with a lump sum of up to [percent].

D) Hot skills premiums

Hot skills are short- to medium-term changes in market rates for individuals with a specific skill set,
typically driven by labor shortages. Employees with a skill set in high demand both internally and
externally may be awarded a temporary premium to match their market value, which will be removed
once there is no longer a market premium for the skill set. If you believe an employee falls within this
category, please contact the [compensation manager].

Between Pay Band Changes

A) Promotional increases

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A promotional increase should result in a compa-ratio of at least [percent] for the employee in the new
pay band. Any promotional increase which takes the employee above a [93%] compa-ratio must be
approved by [Human Resources] before extending the job offer.

B) Acting assignments

An employee is on an acting assignment when they temporarily replace a full-time permanent employee
in a higher position, usually for less than a year.

Under [two] months: Acting assignments that last less than [two] months may be for development
opportunities. No salary increase is required for such instances, but the work done in this position will be
considered during performance reviews.

Over [two] months: A temporary salary increase is typically granted for acting assignments that last
longer than [two] months. It is crucial that the employee is accountable for meeting specific performance
objectives in such instances.

For acting assignments over [two] months, salary is temporarily increased by [percentage range] and can
be increased up to [percent]. [Insert other guidelines, such as timing of the increase.] Any acting
assignment increase must take the employee’s salary to at least the minimum of the range. Any acting
assignment increases which take the employee above a [93%] compa-ratio must be approved by [Human
Resources] before extending the job offer. After the acting assignment ends, the employee will return to
their original salary.

5. Demotions
An employee may be demoted to a job in a lower pay band or a lower position within the same pay band.
Terms and conditions of the demotion must be documented in a letter that is signed by the employee.

A) Employee-initiated

An employee may accept a position in a lower pay band or a lower position within the same pay band for
personal reasons. In such an instance, their salary will be lowered over a reasonable amount [of time,
typically up to twelve months]. Consult with HR to determine the appropriate salary adjustment and
adjustment schedule.

B) Organization-initiated

An organization-initiated demotion can result from an organizational change or performance issues. The
manager must consult with HR to determine if a downward salary adjustment is necessary or if the
employee’s salary will remain at their current rate until the pay band catches up with their salary. Any
salaries maintained above the maximum of the range will require special authorization from [the affected
employee’s Vice President and the Chief Human Resources Officer].

If a salary adjustment is required, a grace period of [12 months] should be applied before any adjustment
is made. Consult with HR to determine the appropriate salary adjustment and adjustment schedule.

6. Job Re-evaluation
If a job has been re-evaluated and as a result it is placed in a higher or lower pay band, employees who
occupy the job should receive a permanent increase or decrease [in order to have the same compa-ratio

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in the new pay band]. An adjustment schedule may need to be created depending on the size of the
increase or decrease.

7. Pay for Performance

Employees are eligible for pay increases every [year] in accordance with the pay for performance
program. Please visit [resource] for more information.

8. Salaries Outside of the Relevant Pay Band

Salaries may be set and/or maintained above the maximum of the pay band in special cases. This is
sometimes referred to as a “legacy” salary. Any salaries above the maximum will require special
authorization from [the affected employee’s Vice President and the Chief Human Resources Officer].

Salaries may never be set below the minimum of the relevant pay band.

[Appendix]

Depending on the level of pay transparency at your organization, include relevant salary structure
information (e.g. minimum, midpoint, and maximum for each pay band).

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For acceptable use of this template, refer to McLean & Company's Terms of Use. These documents are
intended to supply general information only, not specific professional, personal, legal, or accounting
advice, and are not intended to be used as a substitute for any kind of professional advice. Use this
document either in whole or in part as a basis and guide for document creation. To customize this
document with corporate marks and titles, simply replace the McLean & Company information in the
Header and Footer fields of this document.

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