Salary Bands
Salary bands meaning
Salary bands, also known as pay bands, are a system that employers use to structure compensation for employees within specific job categories.
These bands are determined by assessing the job’s value to the organization, the required qualifications, and the market rate for similar positions. The purpose of salary bands is to ensure fair and competitive compensation practices, maintain internal equity among employees, and provide a structured framework for salary negotiation and progression.
How do salary bands work?
Salary bands segment pay scales into ranges corresponding to various organizational job roles. Each band has a minimum and maximum pay rate, which reflects the lowest and highest salary an employee in that band can earn.
Employees are placed into a band based on their role, experience, and performance. As they gain experience or take on more responsibilities, they can move up within their band or to a higher band, reflecting their increased value to the company.
Benefits of using salary bands
Here are some of the key advantages of using salary bands:
- Promoting pay equity: Salary bands help standardize pay for positions of similar value and responsibility within the organization, which promotes fairness and equity.
- Simplified negotiation process: With clear salary bands, the salary negotiation process becomes more straightforward. Employers have a predefined range for each position, reducing the time and complexity involved in negotiating compensation.
- Market competitiveness: Employers can ensure their compensation packages remain competitive by regularly reviewing and adjusting salary bands based on market trends and benchmarks.
- Facilitating career progression: Salary bands can help illustrate potential career progression within the organization, showing employees how their pay could increase as they move up to higher-level positions.
- Improved recruitment: Offering competitive and transparent salary bands can make an organization more attractive to potential employees. According to a survey conducted by LinkedIn, 91% of US-based job seekers indicated that seeing salary ranges in job postings would influence their decision to submit an application.
Salary bands examples
Here you can see an example of salary bands for a software developer position:
| Salary band | Level | Low Range | Mid Range | High Range |
| Band 1 | Entry-Level | $60,000 | $75,000 | $90,000 |
| Band 2 | Mid-Level | $90,000 | $110,000 | $130,000 |
| Band 3 | Senior-Level | $130,000 | $150,000 | $180,000 |
| Band 4 | Lead/Principal | $180,000 | $190,000 | $210,000+ |
An example of broadbanding
Unlike traditional salary band structures, a broadbanding structure consolidates many grades into fewer, broader bands. Here’s an example of broadbanding:
In an IT department’s broadbanding model, all roles from help desk support to chief technology officer are grouped into a single “IT” band. This approach aims to streamline compensation and encourage career progression within the IT field.
If the median salary for the band is set at $120,000, with a salary range from 75% to 150% of the median, this would establish the minimum salary at $60,000 and the range maximum at $180,000.
Salary bands vs. pay ranges: The differences
Here’s a summary of the critical differences between salary bands and pay ranges:
Definition
Broad categories that group jobs of similar value and complexity within an organization.
Specific minimum and maximum salary amounts set for a particular position or level within a salary band.
Purpose
To create a structured pay framework that reflects the hierarchy of jobs and ensures equity and competitiveness in pay across the organization.
To provide flexibility within a salary band by setting a specific pay range for individual positions, considering experience, performance, and market rates.
Application
Used to design and maintain a hierarchical structure of job positions. Helps in job evaluation, setting organizational hierarchy, and career progression paths.
Used in the hiring process and for salary adjustments and raises (e.g., job role changes, promotions) within the predefined limits of the salary band.
Use cases
Strategic planning, budgeting for salary increases, and aligning with market rates at a broader level.
Individual employee salary negotiations, merit increases, and adjusting to market rate changes for specific roles.
How HR can create salary bands in 5 steps
Creating salary bands within an organization involves a structured approach to ensure fair and competitive compensation practices. Here’s a step-by-step process to follow:
- Step 1: Analyze and evaluate jobs: Begin by thoroughly analyzing job roles within the organization to understand their responsibilities, requirements, and impact on the organizational structure.
- Step 2: Research related markets: Use market data to understand competitive salary ranges for similar roles in your industry and region. Sources can include salary surveys, industry reports, and online salary databases.
- Step 3: Develop salary bands: Create salary bands with a minimum, midpoint, and maximum pay. The midpoint typically reflects the market rate for the role.
- Minimum: Usually, the entry point for new hires is with the minimum qualifications.
- Midpoint: Reflects the market average or the salary for a fully proficient individual in the role.
- Maximum: The top end of the range, often for top performers or highly experienced individuals.
- Step 4: Establish progression criteria: Define clear criteria for progression within and between salary bands based on factors like experience, performance, and skill acquisition.
- Step 5: Review and adjust: Regularly review and adjust the salary bands to reflect changes in the market conditions, the company’s financial performance, and changes in job roles or responsibilities.
HR tip
Conduct regular reviews and updates of salary bands to ensure they remain competitive and fair. This not only helps retain employees but also attracts new talent by demonstrating the organization’s commitment to fair and competitive compensation practices.
FAQ
Salary bands are used to ensure fair and competitive compensation practices within an organization. They help to standardize pay rates, promote equity, and provide clear paths for career progression.
Salary bands are calculated by analyzing job evaluations, market pay rates, and the organization’s compensation strategy. This involves assessing the relative value of each role within the company and its competitive market rate, considering factors like required qualifications, experience, and skills.
