The A to Z of Salary Bands: Definition, Benefits, and Implementation
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Salary bands have the potential to drive pay equity, attract and retain talent, plus boost employee performance.
So why aren’t all companies using salary bands yet?
The truth is, that the thought of creating and then successfully implementing salary bands can feel overwhelming.
Knowledge is power — so it’s time to discover everything you need to know about salary bands.
And once you’re armed with the knowledge (and the right compensation management tools) the good news is that creating effective salary bands doesn’t have to be hard.
What Are Salary Bands?
At Figures, our definition of salary bands is: How much a company is willing to pay for a given job at a given execution level.
Also known as pay ranges, pay bands, salary ranges, and more, salary bands are crucial for ensuring fair and consistent employee compensation.
Salary bands define minimum and maximum pay ranges for specific jobs or positions. These jobs can be grouped based on a range of factors, for example, skills or responsibilities.
Now you know what salary bands are — let’s take a closer look at exactly how they work.
How do Salary Bands Work?
Salary bands are typically structured using minimum, mid-point, and maximum values:
- Minimum salary: The lowest acceptable salary for a specific role. Often, new employees or those with less experience will start on the minimum salary, however, this should still follow market rates for a company’s industry, location, and size.
- Mid-point salary: The value at the middle of your salary band. Employees who have started on the minimum salary, completed their initial training, and are performing as expected should usually be paid around this level.
- Maximum salary: The top of your salary band, usually paid to employees who perform exceptionally well, have taken on additional responsibilities, or are very experienced.
The main factors that influence salary bands are:
- Job roles: Each role at a company will usually be assigned specific salary bands, based on factors including the skills required to complete the job, the level of responsibility, including managing others, and the level of knowledge or complexity involved. Typically, complex jobs requiring significant skills have a higher salary band than less complex jobs.
- Experience levels: How much experience an employee has affects their position within their salary band. Usually, performance reviews are used to assess how an employee’s experience has progressed, which can then lead to a pay rise within their salary band.
- Performance: An employee’s performance can have a significant impact on where they sit within their salary band. High-performing employees may receive more frequent pay increases and progress to higher levels of pay compared to employees who don’t demonstrate exceptional performance.
Benefits of Salary Bands
Many HR leaders consider salary bands their ‘secret weapon’ — and that’s because they offer a huge range of benefits for both employers and employees. Here’s what you need to know.
Salary bands support equitable pay practices
Moving towards equitable pay practices requires a structured and consistent compensation philosophy. At the centre of this philosophy, salary bands can be used to support pay equity.
That’s because salary bands help ensure that your HR team and hiring managers have clear structures in place when deciding on salaries for new employees.
Traditionally, salaries would be decided based on a candidate’s previous pay — but that’s not considered best practice anymore.
Figures research has shown practices like this to be problematic because they can end up reinforcing the gender pay gap, even inadvertently.
Salary bands boost employee retention and motivation
Employees want to know they’re being paid a fair wage. And those who don’t feel fairly compensated, or sufficiently appreciated, are likely to start looking for another job. While pay is a clear motivator for retention, so is career development, with 59% of millennials saying they want to see a clear path for how they can develop their careers.
Salary bands can be used to help retain and motivate your employees by showing them that you’re not only committed to paying them a fair wage, but you have a clear plan for their career development too!
By being open about where an employee sits within their pay band, and what skills or responsibilities they need to develop to reach the next level, you can reward performance and encourage internal mobility at the same time.
Salary bands promote transparency
More than ever before, employees are happy to discuss their salaries — and that’s OK! The only problem is when people find out others may be paid more than them for the same role.
To avoid this scenario, you need a transparent salary band structure! With the EU Pay Transparency Directive coming into force — the best time to get this structure into place is now.
Once your salary bands are in place, it’s much easier for employees to see how their pay aligns with the company’s overall pay structure. This promotes transparency and means that everyone is always on the same page when it comes to their pay.
Salary bands reduce bias
Salary negotiations, with new and existing employees, can be impacted by unconscious bias. HR leaders and hiring managers may end up setting different salaries for employees who are both carrying out the same role — and that’s not fair.
A formalised salary-setting process, based on clear salary bands, helps ensure that all salaries are set consistently and objectively.
Salary bands improve budget planning
Knowing exactly where each employee sits within their salary band, plus being able to see what their next pay increase is likely to be helps provide a clear framework for a company’s budget.
This makes it much easier to forecast your outgoings, which in turn makes it easier to allocate resources.
Designing Effective Salary Band Structures
Ready to create your salary bands for the first time? Here’s what
Here’s what you’ll need to get started:
- Complete an internal evaluation: During this first step, you’ll need to carry out a comprehensive analysis of every job at your company. For each of these, note any required qualifications and skills, plus the responsibilities of the role and any other important information. Classify or rank every job, or complete a point-factor analysis.
- Do your market research: When setting your salary bands, it’s important to define your market. Consider your company’s location, industry, and size. If your company is national or multi-national, decide whether the salary for all roles will be the same regardless of location, or if some will be weighted more heavily, for example, roles where employees are expected to live in or near capital cities where the cost of living may be significantly higher.
- Use benchmarking data: At this stage, you need to compare your internal data with external market data. Collating this data can take time, especially if you’re relying on manually finding external salary data from sites like Glassdoor. The data from these sites (which were never designed for benchmarking data, FYI) can be inaccurate, out of date, and not always relevant to your company size and industry. Instead, it’s better to use a compensation management platform that uses real-time, reliable data.
- Tailor your results: Now it’s time for tailoring! With all the information you’ve collected above, you can start to tailor your salary bands to your company’s unique needs. This might include adapting salary bands to account for regional differences and industry-specific factors, for example, if your employees need specific certifications so you can meet regulatory requirements, you might choose to set alary bands for these roles slightly higher.
This process can feel like a daunting task — but we’ve got your back. Figures Salary Bands is our easy-to-use tool that helps you create effective salary bands in minutes, not days.
Implementing Salary Bands
Once your salary bands are set — it’s time to launch!
The first stage is to communicate these pay updates to managers and employees, to make sure everyone understands how and why these changes are happening. Choosing fully transparent salary bands is shown to drive equal pay, so if possible, this is the best option.
Using a compensation management platform like Figures is your best bet for implementing salary bands in the long term. That’s because tools like this make it easy to access real-time benchmarking data from a wide range of companies, which can then be used to inform the position of your salary bands.
A single source of truth like this makes it so much easier to empower fair pay for all employees.
Bands should be periodically reviewed — we recommend every six months — to ensure you’re making efficient compensation decisions.
Market Competitiveness
The industry, location, and size of the company you work for have a significant influence on the salary bands you choose to set, as can the experience required for each job role within the company.
If your salary bands are set too low compared to your competitors, top talent won’t apply because they feel they won’t be fairly compensated.
Set your bands too high and you may attract top talent, but paying above market rates isn’t sustainable, and your budget will take a huge hit.
The key is finding the sweet spot: salaries that fairly compensate your employees but that also match your budget and allow for growth.
To achieve this goal, regular market analysis is needed. As the market fluctuates, you can adapt salary bands to account for these changes, while still attracting and retaining top talent.
Communication and Transparency
Communication and transparency are at the heart of equitable pay decisions. As soon as your HR team starts working on developing salary bands, it’s a good idea to start creating a compensation communication plan.
The goal is to keep all employees informed and aware of how their salaries and benefits are being calculated.
A clear plan also means communication remains consistent and that all managers know what information they’re supposed to share. Some companies choose to go for full transparency while others may openly share salary bands but not individual salaries.
Creating a total compensation statement for each employee is a great way to share an easily digestible overview of their salary and benefits.
It’s also important to consider privacy regulations like the General Data Protection Regulation (GDPR). This protects personal employee information, including their salary.
If your company wants full transparency, this needs to be done while still protecting personal information. You may choose to obtain explicit consent from employees, anonymize salary data designed for publication or aggregate data to show average salaries for specific roles.
Read our full guide on how to communicate compensation decisions to employees.
Managing Salary Band Adjustments
Once set, your salary bands aren’t static — they’re something that should constantly change and evolve. These adjustments typically include annual reviews, promotions, and market fluctuations.
Annual salary reviews can sometimes be tied to performance, with employees only receiving a raise if they’ve reached specific targets.
Other companies choose to de-couple salary reviews from performance and instead use other factors like inflation and external benchmarking to decide if it’s time for a raise.
There are pros and cons to each strategy, so ultimately each company needs to set their approach and use it consistently for all employees.
Promotions are another example of when you may need to adjust salary bands. Consider how the employee’s responsibilities and skills may change, and then adjust the salary within the relevant band.
Keep employees informed during this process, so they understand how their new salary has been set. And don’t forget to leave room for negotiation!
HR leaders need to stay up-to-date with market fluctuations, to proactively adjust their salary bands. The goal is usually to remain competitive while still attracting top talent. Any adjustments like these should always be communicated to employees.
Ensuring Fairness and Equity
Fairness and equity are key cornerstones of salary band implementation. Here’s how HR managers can ensure these principles aren’t overlooked:
- Foster a culture of open communication: Communicating how and why your company has chosen to implement salary bands helps employees understand how their salary is determined, which can boost trust and minimise the risk of any misunderstandings.
- Conduct regular reviews and audits: For maximum effectiveness, salary bands should be regularly reviewed to ensure they accurately reflect current market conditions. The results of these reviews should be fed back to employees as part of your communication plan.
Challenges and Solutions
Once your salary bands are set — the hard work hasn’t finished. Here are some of the challenges HR teams can face, plus some advice on how to overcome these.
- Challenge: Keeping up-to-date with market fluctuations.
Solution: Regularly review your salary bands (at least annually but preferably every six months) using up-to-date and reliable benchmarking data.
- Challenge: Maintaining internal pay equity.
Solution: Ensure the salaries of all existing employees are evaluated to identify any inconsistencies. You may need to adjust some of these to bring them in line with your new salary bands. Make sure these changes are made proactively and communicated clearly, and don’t wait for your employees to bring up their concerns before you make any changes.
- Challenge: Accounting for future growth.
Solution: Creating flexible salary bands helps account for the career progression of employees, and any future growth of the company as a whole. Scalable salary bands can adapt to both employee development and organizational development.
The next generation of salary bands is already here
We’re not moving into a new era of pay — we’re already there.
Forward-thinking companies are already building, maintaining, and sharing their salary bands. Want to achieve the same thing? Figures can show you how.
Build a fair compensation strategy with our all-in-one compensation platform
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