Salary Bands: What are they and why should you care?

May 23, 2023
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Salary Bands: What are they and why should you care?

We all know that money matters. So it comes as no surprise that compensation and benefits are still the number one priority for job seekers. Despite this, many HR teams still don’t have a structured strategy in place for setting pay rates. This puts companies without structured policies are missing out, both in terms of attracting top talent and driving pay equity and transparency.   

The solution? Salary bands.

You might also see these referred to as pay bands, pay ranges, salary ranges, and more — but they all essentially mean the same thing. In short, your salary bands define what your company is willing to pay for each job at each specific level.  

In this article, we’ll take a closer look at why salary bands are becoming the go-to tool for forward-thinking HR leaders, plus how Figures can make it easier and quicker than ever before to create effective salary bands that help drive business success.

What are salary bands?

At Figures, we define salary bands as: How much a company is willing to pay for each job at a given level of execution.

For example, your salary band for a mid-level product manager might be a minimum of €50,000 to a maximum of €70,000. For a senior-level product manager, your salary band might be €60,000 to €90,000.   

Note: the data above are selected numbers and not reflective of any real market.

Salary band structures can be based on a lot of different factors, including:

  • Your overall compensation strategy. 
  • Prioritising internal fairness. 
  • Company positioning compared to the external market.
  • Budgetary constraints.  

Once finalised, it’s a good idea to embed salary bands into your compensation policy — but remember to review and update your figures regularly.   

Why should your organisation use salary bands?

It’s no longer enough to state that you offer a competitive salary — because that can mean very different things depending on each candidate’s expectations, job history, gender, and more. Instead, switching to salary banding allows you to drive pay equity by focusing the conversation on the role, rather than the individual. 

What are the advantages of using salary bands?

There are plenty of advantages to adopting the usage of salary bands, we’ve outlined the top three for you.  

#1 Promoting transparency and fairness

Driving pay equity

If you don’t use salary bands, how does your HR team decide on the offer for each candidate?

Basing your decision on factors like a candidate’s previous pay isn't good enough anymore, as this approach can perpetuate the gender pay gap. Our research found that using salary bands as part of your compensation policy can help drive equal pay — and who doesn’t want that?   

Promoting transparency

As regulations like the EU pay transparency directive come into force, companies will need to provide information about the pay range for each specific role within their job descriptions.

The best time to prepare for these regulations is now, and setting clear salary bands for each position means it’s quick and easy to add this information to job adverts. Improving transparency through openly available salary bands can also help foster trust and engagement, because employees feel their skills are valued on an equal basis.     

Reducing bias

Without salary bands, unconscious bias can creep into salary negotiations.

But when you have a formalised process for setting salaries for each specific role and level, you can improve trust by showing potential new hires, and existing employees, that their salaries are being set consistently and fairly.    

#2 Attract, retain & engage talent

Attracting & retaining top talent

We already know that compensation is the most important factor for job seekers. By clearly stating a pay range for each role, it’s easier to attract top talent because they can see their skills are valued. Rather than having to spend time going through the interview process, only to find out your offer is lower than their existing salary, stating a salary band allows potential candidates to make a truly informed decision.   

#3 Make pay management more effective

Improve budget planning

Without clear salary bands, it can be challenging to forecast upcoming overheads, because it’s unclear how much each pay review cycle could cost you in total. By having defined salary bands, it’s easier to calculate the maximum amount you’d need to allocate, assuming all employees progress to the next band at their upcoming review.  

What are the disadvantages of using salary bands?

Honestly, there aren’t many disadvantages. But as with anything, there are always some cons.   

Developing salary bands takes time

Correctly setting the right salary band for each position and level takes time. In addition to the experience required for each role, you’ll also need to take into account factors like your industry, location, market position, and more.

The good news is that we’re launching the Figures Salary Bands feature — which does all the hard work for you.  

Salary bands don’t take into account commissions or bonuses 

Plenty of positions include commissions or bonuses in addition to base compensation. For these roles, the advertised salary can look low, even though it’ll be significantly higher once those additional benefits are taken into account. It can be more challenging to advertise these roles and attract top talent when stating a salary range because this can look lower than anticipated. 

Existing employees may request a pay review

If your existing employees are on a heritage salary that ends up being lower than your newly advertised salary bands for the same position, you’ll need to adjust their pay so it’s in line with the new bands. This can impact your budget but is the right thing to do. Don’t wait for employees to bring this up either — but proactively address the issue during their scheduled pay reviews. 

Driving transparency and equity with salary bands 

The advantages of salary bands, including how they can help promote consistency, transparency, and fairness are hard to ignore.

Even so, some HR teams might be concerned about the significant amount of time needed to manually review all roles before conducting market research and setting bands for each job and level. The good news is, we’re launching an exciting new feature to do all the hard work for you.  

Coming soon… Figures Salary Bands. 

Up next in our series of blog posts all about salary bands: 

  • Best practice for your company’s salary band strategy
  • How to create your first set of salary bands 
  • How to maintain salary bands 
  • Should you share salary band information with your employees? 

Figures is the best solution for real-time data to help your company remain competitive. Contact us today to find out how we can help.

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