Creating Effective Salary Bands That Fit Your Structure

by Stephan Duncan - May 23, 2019
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Salary bands, also known as pay bands, are pay ranges given to groupings of roles. Salary bands’ pay ranges are influenced by geography, cost of living, seniority, and experience. Salary bands play three crucial roles:

  • Highlight employees that are being under-compensated or over-compensated in their role.
     
  • Influence decisions for employers who are hiring new employees and giving raises to existing employees.
     
  • Provide transparency so that employees can make a fair salary comparison between themselves and employees in similar roles.

Learn why it’s important to fully understand how salary bands work in your organization’s salary structure, and how the process can help employees visualize their pay within the overall salary structure.

Understanding How Salary Bands Work

All jobs doing similar level of work are grouped together within a salary range. The employees in those jobs are all in a salary band. Then, the next more senior group of employees doing a similar level of work are grouped together within a salary range. These employees are in a different salary band. And so on.

Note that salary bands can overlap. For example, mid-level marketing positions within a software company might include an email marketer, product marketer, and lead generation marketer. Those jobs are then grouped together into a particular band and given a predetermined salary range. Within the pay range, the prices for these jobs could be between $49,000 and $71,000.

As those mid-level marketers become director-level, their job responsibilities will increase, along with their pay band. For instance, if Pay Band 3 pays between $49,000 and $71,000, then Pay Band 4 may be between $59,000 and $82,000.

It is important to recognize that when an employee is promoted and moves up from one band to the next, because of the overlap between bands, they aren’t always in a position to receive an increase in salary. However, their salary potential will increase since their new band has a higher maximum point.

Your organization should leverage multiple sources of market data to help determine salary differences between adjacent grades. You should consider using a mix of survey data, HR-aggregate market data, and occasionally self-reported employee data. The more data sources, the more reflective of the market salary bands may be.

After your salary bands are built, be sure to frequently monitor the market to keep your bands’ ranges current. If there are any significant changes in external job prices, update your ranges so your compensation practices can continue to positively impact employee engagement and talent retention.

How to Create Salary Bands

There is an 8-step process to create salary bands for your organization. However, the process is easy to follow, and once in place, pay within your organization will have increased transparency, and you’ll be able to better explain decisions surrounding pay increases or promotions:

  1. Determine your salary market position – Make a strategic decision about where you want your salary structure to lie in comparison to the market (i.e., on par, ahead of it, or behind it). For example, if you are in a competitive environment and require more specialized employees, you may need to compensate more. This decision will influence how you’ll attract and retain top talent.
     
  2. Conduct job description assessments – Review each job description within your organization to confirm that duties and qualifications align with the job. This helps you judge what salary band a job’s responsibilities and pay fits within, ensuring that those jobs are receiving fair pay.
     
  3. Bundle similar roles into families – Take your jobs and group them together into larger job families with similar attributes. For example, group your software and project management jobs under IT and Product, accounting jobs under Finance, and customer success managers and account executives under Sales. Bundling these jobs together will help you visualize similar jobs within a family.
     
  4. Rank jobs within families – Once your job families are established, evaluate each job based on level and responsibilities and rank them to establish hierarchy. You can rank based off value to the organization, years of experience, or classification of the role.
     
  5. Perform a salary comparison – Research how your jobs are being paid in comparison to those in similar roles, with similar compensable factors, and similar company types, in similar markets. CompAnalyst compensation software and Compdata salary surveys, and IPAS salary surveys from Salary.com can help give you a clear picture on whether or not your employees are being fairly paid for their respective jobs.
     
  6. Determine employees who are salary outliers – Determine which employees are being paid on the high-end and low-end of their job families. This will alert you to wage disparity between your employees, which can lead to pay inequity, and flight risk.
     
  7. Establish pay grades – Now that you’ve established job hierarchy, take each job group and classify them into a pay grade. If your organization is large with many jobs, you’ll have more pay grades. Creating pay grades will show how large your salary bands’ ranges are.
     
  8. Mark salary band values – Find the key values in the pay band – the minimum, midpoint, and maximum salary. This will help show how large your salary bands’ ranges are and what the jobs’ prices are within each grade. Recognize that salary bands can (and often do) overlap.

The table below is a mock salary band plan within a company:


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