Did you catch our recent webinar series on maintaining and sharing salary bands? If not, don’t worry — we’ll be sharing some of the key takeaways from the two 90-minute sessions in this article.
Want more insights? You can watch the full webinars here (part one) and here (part two).
About the webinars
In our recent series, our CEO and co-founder Virgile Raingeard teamed up with Compensation and HR Consultant Marie Richter to share various insights about maintaining and sharing your salary bands — and believe us when we say that the two sessions were jam-packed with useful, actionable info.
A quick note: these webinars were about maintaining and sharing salary bands — not setting them up for the first time. If you’re just starting out on your journey towards fair, structured compensation (AKA salary bands), you can check out our previous webinar on how to get started.
Now, let’s get started with some of the juicy insights that Marie and Virgile shared during this most recent series.
Why salary bands?
It’s no secret that we’re big fans of salary bands here at Figures. But why is it so important to talk about salary bands now? For one simple reason: because of the EU pay transparency directive.
The directive is currently being rolled out in all 27 member states. And once the rules are in force, companies across Europe are going to need to be able to justify every decision they make about compensation.
That means you need a structured, consistent system to help you make those decisions — and in our book, that means salary bands.
Reviewing your salary bands: when, why and how?
Salary bands are not a one-and-done, set-and-forget situation. Quite the opposite: they should be constantly iterated to make sure they’re still promoting fair and competitive pay.
But how often should you actually be reviewing your salary bands? According to Virgile and Marie, there are two major moments when this needs to happen:
- Annually (or biannually) as part of your overall compensation review
- Proactively when there are signs that your salary bands may not be working
The first of these is easy: reviewing your salary bands should be an integral part of your compensation review process, which most companies run once a year. This is important, because your salary bands are the basis for all or your organisation’s decisions about pay — so you need to know they’re still aligned with both the market and your internal strategy.
But there are also moments when you might need to proactively adjust your salary bands throughout the year. Typically, there are two signs that this might be necessary:
- High voluntary turnover: If you're seeing an unexpected number of employees leave for other opportunities, it might be a sign that your salary bands have dropped below the market.
- Drop in offer acceptance: Similarly, if you’re getting a lot of rejections from candidates, your offers may not be as competitive as you think they are.
Keep in mind that this might not be the same for all positions. For example, the market for developers and other tech roles tends to move quickly — so you may need to adjust your salary bands for those roles more than once a year.
Salary bands and the compensation review process
As we’ve talked about before, the compensation review process is one of the most important moments in the year. It’s your opportunity to correct internal and external inequities, reward top performers and demonstrate your commitment to fair and equitable pay.
As we mentioned above, reviewing your salary bands should be part of this process. And your salary bands are also the framework for determining which employees get a salary increase.
How salary bands help you award fair salary increases
When you’re deciding on salary increases, there are a lot of different things to take into account. Market positioning, inflation and your internal compensation philosophy all play a part, for example.
And for many organisations, employee performance is one of the key factors that goes into deciding who gets a raise (and how much).
Here’s how that usually works: Employees are ranked on a scale going from ‘below expectations’ all the way up to ‘outstanding’, and those rankings are used to determine salary increases.
But there’s a problem: imagine you have two employees working in the same role, at the same level, who receive the same performance rating. But, for whatever reason, one of those employees is paid more than the other.
If you give both of them a 5% increase, one employee will still be making more than the other, even though their job and performance level is the same. Is that fair? We don’t think so. And it may also be hard to justify once the EU pay transparency directive is in play.
Here’s the solution: when you determine raises, consider both performance and where an employee is currently sitting within their salary band. For example, someone who is already near the top of their band might get a 2% increase, whereas someone at the bottom might get 6%.
Manual vs. automatic compensation reviews
The traditional way to run a compensation review is by using spreadsheet software like Excel or Google Sheets. Indeed, our very own Virgile did it this way for many years!
But there are a few problems with this method: it’s incredibly time-consuming, for a start. It’s also very prone to errors when copying salary data over from one source to another. And, perhaps most importantly, it makes sharing the right salary data with the right people a nightmare.
So, what’s the alternative? Using a compensation management tool (like Figures) makes things significantly easier.
For one thing, it provides a single source of truth that you know you can rely on, instead of multiple versions of the same Excel sheet floating around in various inboxes. It also makes communication between managers, HR and other stakeholders much easier and more secure — so you won’t need to worry about accidentally sending sensitive salary data to the wrong person.
How to know if your salary bands are working: KPIs and key metrics to track
If you want to make sure your salary band structure is working for you, you need to be keeping a close eye on it. That means you should be tracking certain metrics and setting certain KPIs.
The basics
Here are some basic metrics you should definitely be tracking if you’re using salary bands:
- Compa-ratio (CR): This is a number that expresses an employee’s positioning compared to the midpoint of a range (i.e. their salary band). For example, an employee with a compa-ratio of 1.0 (or 100%) is exactly at the midpoint.
- Salary range penetration (RP): This is a similar metric, except that it expresses an employee’s salary in comparison to the entire range instead of just the midpoint. For example, a salary range penetration of 50% would mean the employee’s salary is at the midpoint of their salary band.
Taking things further
And here are some other things you could consider if you want to take things to the next level:
- Band distribution: The percentage of employees across the entire organisation whose pay is below, within and above their salary band.
- Average CR or RP: You can track this for the entire organisation, and then break it down by gender and other factors to spot any inequity.
- Adjustment budget required: This is the total amount you’d need to bring everyone back in range. Tools like Figures can calculate this for you.
- Internal compa-ratio: How an employee’s pay compares to the median of every employee within the same salary band.
- CR or RP per tenure: This allows you to test whether new employees are systematically being paid more than those who have been with the organisation for longer.
Communicating about salary bands
Remember what we said at the beginning of this article? Once the EU pay transparency directive is in force, businesses will have to be ready to justify every single compensation decision. That means that communicating about salary bands is super important in 2024.
For the full lowdown, you’ll need to watch part two of the webinar series — but we’ve pulled out a few key points about the different parties you’ll need to communicate with below:
- Communication with leaders: Getting leaders on board with your salary bands should be the first step in putting them together. They need to understand exactly why you’re setting up salary bands, and what they will achieve for your company.
- Communication with managers: Managers are arguably the most important people when it comes to communicating about salary bands, since they’ll be the ones passing on important information to their teams. You should organise regular training sessions to ensure managers understand what they can and can’t communicate, and have the confidence to answer employee questions about pay.
- Communication with employees: HR also has a responsibility to communicate directly with the organisation as a whole about your compensation structure. Think carefully about how you could set up communication channels that employees can rely on.
- Communication with the general public: This is the last step in the pay transparency journey, and if you’re not there yet, that’s OK. But ultimately, the EU directive will mean companies have to be a lot more open about their internal pay structures — and getting started now puts you ahead of the game.
Remember, like anything in HR, the way you communicate about your salary bands is an iterative process. That means you should keep a close eye on what’s working (and what isn’t) and seek feedback from stakeholders to find out how you could improve.
Learn more
As we mentioned, Marie and Virgile talked for about three hours across the two webinars in this series — and the agenda was packed. That means there’s no way we could squeeze everything they said into one blog post.
The good news? You can get access to a whole ton of actionable, useful insights by watching the full webinars — find part one here, and part two over here.
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