Range penetration: the salary metric you need to be aware of
Range penetration is a key metric for an employee’s compensation. It shows the level of an individual’s pay compared to the total pay range. It lets both HR and compensation professionals and employees know where someone stands in relation to the entire salary band.
Main information range penetration shows
It is useful to decide where to locate your workers depending on their seniority. Junior employees, for example, may be assigned to the top 25% of the range, while senior employees are assigned a salary of 75% of its range.
Moreover, looking at where all of your employees fall within each of your ranges can also be a useful indicator that maybe your ranges are too wide or too narrow:
- Narrower ranges are better for lower-level positions where employees are starting their careers. In this stage, workers are more likely to be promoted faster to a new position.
- Meanwhile, wider ranges help retain mid to late-career employees. They are less likely to change positions, they will aim for salary increases within their current location as they grow experience and expertise. Wider ranges give place to salary increases easily.
How can you discover your range penetration?
The formula is:
Range Penetration = (Compensation – Min)/(Max-Min)
TalentUp’s platform is a useful tool to see where your employees are being placed.
Look at this example of salaries for a mid Human Resources Manager in Paris. Tables like this are displayed on TalentUp’s platform for +250 roles in +120 cities.
|Experience (years)||25th percentile||50th percentile||75th percentile||90th percentile||99th percentile|
Imagine someone in this position has an annual salary of 70,000€. The salary range is 55,000€ – 82,200€. Applying the range penetration formula:
Range penetration = (70,000-55,000)/(82,200-55,000) = 15,000/27,200 = 0.55 or 55%.
This salary is 55% into its salary range.
How is it useful to companies?
Range penetration can be useful for companies in several ways. First, it can help them to manage their compensation costs and ensure that they are paying their employees fairly and in line with industry standards. It is a useful tool to check pay equity. By setting salary ranges for different positions and establishing target range penetrations, companies can create a structured and consistent approach to compensation that aligns with their overall business goals and budget.
Range penetration can also be used as a tool for employee motivation and retention. For example, a company may use range penetration as part of a performance-based pay system, where employees who exceed certain performance targets are eligible for higher salaries or greater range penetration. This can help to create a sense of accomplishment and recognition for employees and encourage them to continue to contribute to the success of the company. Moreover, it shows employees what is their potential.
In addition, range penetration can be used as a way to attract top talent and differentiate a company’s compensation offerings from those of its competitors. By offering higher range penetrations or more generous salary ranges, a company may be able to attract top candidates who are looking for competitive pay and opportunities for advancement.
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