What Are Salary Bands?

September 29, 2023
November 7, 2023
Sarah Lindenfeld Hall and Andy Przystanski
Lattice Team

Compensation and clarity have seldom gone hand-in-hand, and employers have historically kept pay rates and salary ranges private. But two triggers — worker expectations and new laws — are increasingly prompting employers to reveal those figures.

Some 91% of US-based job candidates said that seeing salary ranges in job postings would affect their decision to apply for a job, according to a 2023 LinkedIn report. And, increasingly, employers don’t have a choice. A growing number of state and local pay transparency laws are requiring organizations to list salary ranges in internal and external job postings. 

As more organizations comply with new laws and work to meet employee expectations, an essential compensation tool has emerged: salary bands. Here’s what salary bands are, and why they play a critical role in ensuring pay transparency and keeping workers engaged and motivated.

Key takeaways

  • Salary bands refer to the minimum and maximum amount a company will pay someone within a job level.
  • Salary bands can boost talent acquisition, employee performance, and pay transparency.
  • When determining salary bands, role expectations, geography, skills and influence, and market rates are critical factors to consider.
  • Salary bands support the implementation of pay-for-performance structures, helping managers calculate merit increases based on an employee’s performance and position in the band.

What Are Salary Bands? 

‍Salary bands refer to the minimum and maximum amount a company is willing to pay someone within a job level. For example, a level-one human resources professional might be eligible to earn between $50,000 and $70,000. Meanwhile, a level-four employee — let’s say an associate director of HR — may have a salary band ranging from $100,000 to $130,000.

Sometimes called pay bands, these ranges are a vital part of a company’s compensation strategy. In conjunction with job levels and job competencies, pay bands are used to facilitate hiring, performance management, and career development.

Simply put, building salary bands and advertising them “is going to positively impact your workforce and attract the right people and retain the right people,” said Amy Laiker, head of boutique staffing agency Tiger Recruitment’s New York office.

Benefits of Using Salary Bands

Salary bands give structure to pay decisions, and the benefits cascade across business operations and the employee lifecycle in four big ways. 

1. Budgeting and Finance

From a strictly financial standpoint, pay bands bring a level of budget certainty to payroll, which is especially important when planning for organizational growth goals, said Jim Pendergast, senior vice president of altLINE, an invoice factoring company.

Without salary bands, companies wouldn’t be able to forecast overhead, plan for growth, or even reward top talent. “They put sensible parameters around cost creep associated with employees asking for raises or performance bonuses,” Pendergast explained.

"Without a minimum and maximum rate for every job, HR teams don’t have an emergency brake for runaway pay disparities."

2. Talent Acquisition

When organizations put in the work to create salary ranges and share them in job postings, job seekers take notice, research shows. When asked in a LinkedIn survey which elements of a job posting were most helpful when deciding whether to apply, 89% of respondents said “salary range” was important. The only element that ranked higher was “responsibilities of the role,” which came in at 90%.

In another survey of workers by career advice website ResumeLab, 80% of respondents said that a lack of information about salary range in a job posting would likely stop them from applying. Moreover, 77% said they believe that companies that don’t include salary information in their postings can’t be trusted.

Indeed, posting salary ranges can demonstrate an organizational culture of open communication, transparency, and pay equity to prospective new hires. The LinkedIn survey found that 82% of respondents had a more positive impression of a company when they posted salary ranges in job descriptions. 

“It talks to your culture and values,” said Brianna Rooney, founder and CEO of both TalentPerch, a recruiting solution, and Thriversity, which provides training for talent acquisition professionals. 

3. Employee Performance and Engagement

For current employees, pay bands can feature prominently in performance conversations. And a growing number of leaders believe transparency around minimum-maximum earnings promotes compensation clarity, motivates employees to set development goals, and even prevents turnover.

When an employee notes that their compensation is at the midpoint of the pay scale, for example, they can have a more open conversation with their manager about how they can move up to the top of the pay band and on to the next, Laiker explained.

The data provides a benchmark for employers and managers as they launch into salary negotiations. “It enables you to have the conversations that the employees often need to have,” she said.

4. Transparency Around Pay Decisions

Combating unconscious bias and pay inequity is hard enough. Without a minimum and maximum rate for every job, HR teams don’t have an emergency brake for runaway pay disparities.

“It can create situations where employees feel like the organization is favoring some over others,” noted Daniel Cooper, managing partner at software development firm Lolly. “Two employees might have comparable roles, but one will earn way more than the other depending on less tangible factors. It can breed resentment and unhealthy competitiveness.”

"Any decision about salary bands should start with an organization’s compensation philosophy."

Determining Salary Bands

While salary bands can bring big benefits to employers, no one-size-fits-all approach to crafting them exists. Leaders will need to consider a variety of factors to determine the right pay ranges that will attract and retain top talent, based on their particular needs and long-term goals. 

Factors for Determining Salary Bands

  • Compensation Philosophy: Any decision about salary bands should start with an organization's compensation philosophy, which provides a foundation for how an organization pays and rewards its employees. 

    Compensation philosophies take into account how business objectives impact compensation strategy and pay structure. For example, business plans to create a new product might require highly skilled engineers. But to lure that top talent with the skills to innovate and create something new, you may need to shift your salary bands higher to attract and retain them.
  • Role Expectations: What education and experience are employees expected to bring? What are the levels of responsibility? How do those key tasks fit into the organization’s mission and values? Creating robust job descriptions for each job title can help to ensure that required tasks and responsibilities are considered while building salary bands.
  • Skills and Influence: While one might assume that leadership roles are always in a higher pay grade than individual contributor roles, that isn’t necessarily the case. Having in-demand skills that tangibly affect the business, experts advised, changes the calculus.

    It’s not uncommon for even junior engineers to outearn managers in other departments, said Darrell Rosenstein, founder of The Rosenstein Group, a technical recruiting firm. It’s often advisable to maintain separate, department-specific sets of pay bands.

    “Comp doesn’t always correlate to how many people someone supervises,” Rosenstein explained. “Highly skilled positions crucial to the company’s operations often warrant a higher salary band than supervisor positions in other departments or areas.” 

  • Geography: Organizations with offices across the country have historically adjusted their salary ranges based on the location where an employee works. According to a 2022 WorldatWork survey, 56% of organizations use city or metro market areas to create these geographic pay differentials. For example, Laiker works with one company that pays employees in New York, California, and Washington 10% more than employees who live elsewhere because of the higher cost of living in those states.

    But geographic pay differentials aren’t the right option for every employer, especially as some shift to focus on remote or hybrid work. According to the WorldatWork survey, of the 57% of organizations with geographic pay policies, more than half considered modifying them — or had modified them already — as more employees worked remotely. 

    As part of their salary band deliberations, employers will need to decide whether geographic pay differentials are the right choice for them and consider the expectations of the workforce they need to make good on their plans and goals. 
  • Market Data: Especially as more employers publish pay ranges, organizations must consider the market as they calculate their salary bands for different roles. Don’t just factor in your immediate competitors in your market research, Laiker advised. A midsized financial services firm will need to consider what large companies and boutique firms are paying in the space to ensure they remain competitive as an employer. 

Pay Band Flexibility and Pay-for-Performance

Once you’ve set salary bands, you’re not done. Market fluctuations, growth plans, and new innovations require ongoing updates to ensure fairness and relevancy. It’s also important to remember that compensation management seldom plays out as neatly as it looks on paper.

At any given time, you’ll likely have employees in similar roles with varying experience, tenure, and other legitimate pay factors. While salary bands add structure to your compensation strategy, your team also can build in flexibility to accommodate legitimate discrepancies.

Overlapping pay ranges gives managers the flexibility to strategically grant merit increases and promotions. For example, if a level-two employee warrants recognition but isn’t ready for a promotion, their manager can award an increase on par with the next level’s starting salary.

Salary bands also can help employers structure pay-for-performance models, which link employee salaries or bonuses to their performance. Pay-for-performance models allow managers to consider both an employee's performance and their position within their salary band as they award salary increases.

As a result, a “truly outstanding” employee who is earning in the bottom third of their pay band might earn a bigger merit raise than a similarly performing peer in the top third of the band because they have so much room to grow within the band. 

Bottom line, in whatever way you can, “rewarding high performance is a really good way to retain top talent,” Laiker said. 

Compensation represents just a part of your overall strategy for keeping your team motivated and performing at their best. It takes a holistic investment in engagement, development, and performance management to build a workplace where employees thrive.

But workers are increasingly making it clear that clarity around pay matters. What’s more, when salary ranges are clearly communicated, job candidates may be more likely to apply for a position and, once hired, stay engaged as they follow a road map toward merit raises and promotions. 

“Clear lines of communication and transparency, it’s all going to lead to having a workforce who are happier and who feel like they have got more of a seat at the table and are part of that conversation,” Laiker said, “and that is going to help you retain staff and build that culture…of open communication.”Pay transparency can drive powerful business results. Ready to find out how to incorporate it into your compensation strategy? Take our pay transparency quiz and download our ebook HR’s Guide to Compensation Transparency.