Economics

Salary range definition/Importance/Changes/Types

The salary range is the quotient between the highest and the lowest salary paid by a company. Although it can also be analyzed for an economy, productive sector or public entity. Salary range definition

In other words, the salary range results from dividing the ‘cap’ remuneration by the lowest salary offered by a company, institution, nation or economic activity.

For example, let’s imagine that the largest-scale salary in a company is 9,000 euros, while the most basic is 1,800 euros. So, the salary range is 5 (9,000 / 1,800), that is, the highest category has five times the income of the lowest paid category.

The salary range seeks to reflect the distance between the best paid workers and those of the lowest scale. In this way, firms can establish a remuneration policy for different areas and / or professional groups.

Importance of the salary range

The salary range is important because it shows the salary gap between the lowest and highest employees. This difference must be justified not only by seniority in the organization and professional titles, but mainly by productivity .

In other words, those who earn more must contribute more to the company. Otherwise, it will generate unrest among the workers. They may perceive, for example, that remuneration does not correspond to skills, but to discretionary decisions of management. Salary range definition

As a consequence of the discontent described, employees may be discouraged from staying for a long period in the company, generating a high turnover of human resources.

Changes in the salary range

Salary ranges can be modified in two ways:

  • Closing the fan: When the lowest salaries increase more than the highest salaries. So the gap decreases.
  • Opening the range : Higher salaries increase in a greater proportion than lower salaries. Consequently, the difference between the income of the employees is widened.

Types of salary ranges

Salary ranges can be classified into two:

  • Absolute range: Reflects the difference, globally, between the highest and lowest salary in a company, country or economic activity (As we have explained in the examples in the article).
  • Relative range: When analyzing the wage gap within a group of workers that are related to each other. This is, for example, if we take as a reference only the maximum and minimum remuneration that the managers of an organization receive. Salary range definition

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