Compensation & Salary Administration Guidelines

Purpose

To help managers and Human Resources administer pay fairly and consistently — salary structure, merit and promotional increases, grade changes, and job evaluation — in line with the organization's pay philosophy, budget, and the external market.

Scope

Covers merit increases, promotional increases, salary adjustments, leave-related timing, incumbent-only grade assignments, reductions in grade, and job-evaluation requests.

Communicating pay

Managers are encouraged to share an employee's FLSA status (exempt vs. non-exempt), grade, and salary range. Communicate this individually. Note: many state and local pay-transparency laws now require disclosing pay ranges in job postings or on request — comply with the rules where you operate.

Salary structure

• Jobs are grouped into grades; each grade has a salary range (minimum, midpoint, maximum) reflecting the market rate for similar work.
• The midpoint typically targets the market rate. Ranges are often divided into thirds — pay builds toward the midpoint as an employee gains experience, then above it for sustained high performance.
• Compa-ratio (salary ÷ midpoint) measures where a person sits in the range.
• Some employers use broad bands — wider ranges and fewer grades — for more flexibility to reward performance without a formal grade change.

Merit increases (pay for performance)

Merit increases reward individual performance. A common approach is a merit matrix: larger increases for higher performance ratings, and — for a given rating — larger increases lower in the range and smaller increases near the top, so pay progresses toward the market rate and slows above it.

Performance rating	Lower third of range	Middle third	Upper third
Distinguished	highest	high	moderate
Commendable	high	moderate	lower
Effective	moderate	lower	lowest
Developmental	low	low	none
Deficient	none	none	none

Illustrative only — set the actual percentages to your annual budget and market data.

• Review cycles. Either an anniversary-date cycle (each employee is reviewed on their hire anniversary) or a common-review-date cycle (everyone on one date). New hires and mid-cycle changes are pro-rated: (annual % increase × months in the cycle) ÷ 12.
• Adjustment to minimum. If an employee is below the range minimum at review time, bring the salary to the minimum first, then apply the increase on the adjusted figure.
• Lump-sum increases. For strong performers already at or above the range maximum, consider a one-time lump sum rather than adding to base pay.
• Delayed increases. Defer the increase for an unsatisfactory ("Deficient") rating until performance improves (with no retroactive make-up), or where a leave or insufficient tenure prevents a fair assessment.
• Distribution. No forced distribution is required, but expect most employees to fall in the middle ratings.

Promotional increases

• A promotional increase is given when an employee moves to a higher grade and takes on the new duties. After the increase, pay should be at least the new range minimum.
• Factors: number of grades moved, performance, position in range, internal equity, and recent salary growth.
• Review-date impact: an off-cycle promotion generally re-establishes the review date (anniversary cycle), or grants the promotion increase now with a pro-rated merit later (common-date cycle).
• In-grade increases may apply when duties grow significantly without a grade change.
• If it has been six months or more since the last appraisal, conduct one at the time of promotion.

Leaves of absence and increase timing

• Short leaves (under ~2 months): the increase is retroactive to the scheduled date.
• Longer leaves: the increase takes effect on return to work, and the review date is re-established.
• Protected leave: do not penalize an employee's salary-review timing for taking FMLA-protected family or medical leave — an approved protected leave does not change the review date or forfeit the increase.

Grade assignments and reductions

• Incumbent-only / red-circling. When an individual is in a role graded differently than their pay warrants — a developmental assignment, a unique contributor in a lower-graded role, or a reorganization — their pay may be red-circled (held above the new range maximum) until the range catches up. Review such arrangements at least annually; title the person by the work they actually perform.
• Reduction in grade (job elimination, reorganization, reduced duties, or personal choice): the employee takes the new grade and retains current salary if it is within the new maximum; otherwise, management and HR may reduce pay into the new range, weighing performance, internal equity, and time in the former grade. Communicate the change in writing (noting that future pay growth may be limited) and place a copy in the personnel file.

Job-evaluation requests

When a job's duties have changed enough to warrant re-grading, request a job evaluation:

Step	Action
1	The manager requests a job evaluation through Human Resources.
2	HR submits the request to the compensation function with the rationale and requested grade, a current (and prior, if applicable) position description, an organization chart showing at least one level up plus peer and subordinate roles, and a comparison to similar internal positions.
3	The compensation function completes the evaluation and assigns the grade (and title, if needed).

Evaluate the job — the tasks and responsibilities the organization needs performed — not the person in it. An individual's traits are relevant to performance review, not to job grading.

Approvals

Salary actions follow an escalating approval chain: the manager granting the increase → next-level management → Human Resources. Exceptions to these guidelines require higher-level (e.g., two-levels-up) approval, and any change that introduces or modifies an element of compensation should be approved by the compensation function.

Fairness and compliance (best practice)

• Base pay decisions on job-related, non-discriminatory factors, and review for pay equity across protected groups.
• Comply with equal-pay, pay-transparency, and salary-history laws, which vary by state and locality.
• Document the basis for pay decisions.