Compensation Pay Ranges

With the annual increase season coming up for many employers, one question we hear often is, “What should we do when employees are at or near the top of their salary range?” Whether it’s due to tenure, limited advancement opportunities, or tight salary bands, this is a moment that calls for strategic attention. How you handle it impacts equity, morale, and your ability to stay competitive.

First, step back and look at your structure. If a few long-term employees are hitting the max, that’s expected. But if many are at or above the cap, it might be a sign of deeper issues. Ask yourself:

• Are our pay ranges still aligned with the market?
• Are we hiring people at pay levels that are too high, too fast?
• Are our entry-level ranges too compressed?
• Are we rewarding tenure over skill development or business impact?

Often, a well-built compensation system should reward growth, not just time. If your structure doesn’t allow room for employees to develop and move within their range, it may be time for a market review or structural adjustments.

When a salary increase pushes an employee past the max, many employers choose lump-sum bonuses instead. This lets you recognize strong performance without distorting your pay structure and continually compounding costs. It’s a practical solution, but make sure you explain it clearly. Lump sums don’t increase retirement contributions or other benefits tied to base salary, and the taxes may look different on a paycheck. Some employers pay lump sums annually, while others split them into quarterly or semiannual payments to smooth out the cost and reinforce retention. There’s no single right approach; just be consistent and transparent.

Beyond base pay and lump sums, think about other meaningful ways to reward employees if budgets are tight:

• Offer extra paid time off or flexible work arrangements.
• Provide career development opportunities like training, mentorship, or stretch projects.
• Explore internal mobility or reclassification if the role and performance justify it.

If you go this route, be sure those options are available across the board. You don’t want to create the perception that only some employees get special treatment.

Paying someone above the range should typically be the exception, not the norm. If you’re regularly exceeding your stated salary maximums, you’re effectively telling employees your ranges don’t matter. If market conditions have changed significantly, the better solution is to update your structure based on current market benchmarking, and typically, ranges should be adjusted annually.

The most important step in all of this is having a real conversation with the employee. Let them know they’re at the top of the range, explain what that means, and walk through the options. Find out what matters most to them. Do they want to advance? Are they focused on flexibility? Are they happy in their role but still expect recognition for strong performance? Being proactive, clear, and honest builds trust. Even if the short-term answer is a lump sum or holding base pay steady, giving employees visibility into the "why" and the "what's next" makes all the difference.

When someone reaches the top of their pay range, it doesn’t have to be a roadblock. It’s a chance to re-evaluate your pay strategy and reinforce what matters to your organization. Review your structure, think creatively about rewards, and most importantly, keep your communication open. How you respond has a direct impact on engagement, retention, and overall compensation credibility.  If you need help discussing which option may work best for your organization, contact CEA’s sister association Cascade—they are our trusted Compensation Team and offer discounts to CEA members!