Compensation and clarity seldom go hand-in-hand. Surveys show that less than half of employees understand how pay gets determined — and most HR teams admit they could do a better job formalizing those decisions. That’s where salary bands come in.
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 HR professional might be eligible to earn between $50,000 to $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, as visualized below.
Sometimes called pay bands, these ranges are an essential part of a company’s compensation strategy. In conjunction with levels and job competencies, they’re used to facilitate hiring, performance management, and career development. And from a strictly financial standpoint, they’re critical for budgeting or simply keeping the lights on.
“Pay bands bring a level of budget certainty to payroll. This is especially important when planning for organizational growth goals,” said Jim Pendergast, Senior Vice President of altLINE. 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 said.
Benefits of Using Salary Bands
Salary bands give structure and process to pay decisions. But the benefits of having them extend beyond traditional total rewards and finance, touching focus areas like employee engagement, performance management, and talent acquisition. “Formalized salary bands aren’t just essential for the management of your compensation strategy. They also bring transparency, foster open communication, and help to attract and retain top talent,” said Susan Norton, Senior Director of Human Resources at LiveCareer.
Norton cited examples across the employee lifecycle. First, her team’s recruiters use them when screening applicants and during salary negotiations. Pay bands can also feature in development conversations, either serving as a reality check or positive motivator for employees looking to earn more or transition to a higher job level. “On the other hand, they also give current employees a better understanding of the development and promotion possibilities available to them,” Norton said.
Other leaders pointed to some of the consequences of not using salary bands. Combatting 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,” Daniel Cooper, Managing Director at Lolly.co. “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.”
Determining Salary Bands
A range of factors should influence your company’s salary bands. Role expectations, education, experience, and geography all play a role, each backed by market research. HR teams also need to regularly revisit pay bands, even if it means hiring an outside consultancy to ensure that employee compensation is competitive and equitable.
“My advice is to always look at the market and industry data to ensure fairness in your organization,” Norton said. The market rates for a role can fluctuate any given year, almost like stocks. “It’s so crucial to revisit your salary bands at least once a year. We saw rapid changes in employment in 2020, so don’t make the mistake of sticking to old data that is no longer relevant to your industry,” she said.
In addition to market rates and geography, experts recommended taking a close look at skills and influence. While one might assume that leadership roles always warrant more than individual contributors’, that isn’t necessarily the case. Having in-demand skills that tangibly affect the business, experts advised, changes the calculus.
“Salary bands within your company should relate to the amount of responsibility and impact a position bears for the overall success of the business,” said Darrel Rosenstein, founder of The Rosenstein Group, a technical recruiting firm. He noted that at software companies, it’s not uncommon for even junior engineers to outearn managers in other departments.
“Comp doesn’t always correlate to how many people someone supervises. Highly-skilled positions crucial to the company’s operations often warrant a higher salary band than supervisor positions in other departments or areas,” he said. For this reason, it’s often advisable to maintain separate, department-specific sets of pay bands.
Pay Band Flexibility and Transparency
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, they can be flexible enough to accommodate legitimate discrepancies like these.
“Expect salary bands to carry some overlap, given the fact they're based on things like experience level, certificates, or education,” Pendergast said. Overlapping pay bands (as visualized earlier) 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.
Equipping managers and their reports with pay band information facilitates decisions like these — but according to a 2019 survey, just 36% of companies do so. A growing number of leaders, including Pendergast, believe that transparency around minimum-maximum earnings promotes compensation clarity, motivates employees to set development goals, and even prevents regrettable turnover. “Having your salary bands communicated clearly also helps establish why legitimate discrepancies exist and can protect against confusion or even legal ramifications,” he added.
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 an award-winning “best place to work” where employees thrive.
We’ll take care of that second part. Lattice’s people management platform transforms how companies approach people strategy by connecting performance, engagement, and career growth in one unified solution. To see our software in action, watch this video tour or schedule a demo today.