Salary Bands: Pros and Cons Explained

A salary band is a defined pay range – with a minimum, midpoint, and maximum – assigned to a specific role or level. They provide a clear, transparent framework for setting fair, equitable salaries. But, like any compensation strategy, setting up salary bands is a lot of work – and it’s important to be sure it’s the right strategy for you before diving in.

This is especially important now, with the EU Directive on Pay Transparency set to take effect in June 2026, and there’s a lot of pressure on companies to ensure their pay policies are equitable and fair. Salary bands do exactly that!

In simple terms, they make sure that every employee in your organisation is being paid exactly what they deserve according to their role, seniority and performance.

If that sounds like something you care about (and we really hope that’s the case), read on for our complete guide to salary bands – what they are, why they matter, how to build them, and where they might fall short.

7 advantages of salary bands

Building salary bands for your organisation is a huge and time-consuming task. But is it worth it? We strongly believe so! 

But first – what do salary bands actually look like? Here's a quick example using a marketing team with three levels of seniority:

Each band has a minimum, midpoint (the market rate), and maximum. The width of the band gives room for factors like experience, performance, and tenure to influence where an individual sits within the range. As an employee grows in their role, they can progress through the band – and eventually move up to the next one.

Now, here are some of the many reasons why using salary bands is a good idea.

1. Helps ensure equitable pay

The pressure is on for companies to deliver equitable pay. Not just because of legislation like the upcoming EU Pay Transparency Directive, but also because modern employees are demanding it. Mercer found that perceptions of unfair compensation are a leading reason employees in the EU leave their organisations.

So, how do salary bands contribute to equitable pay? Simple: they ensure that everyone is paid according to a predefined set of criteria – not on the whim of whatever manager is making the decision.

Structuring pay around consistent, market-aligned ranges removes the conditions in which bias-driven decisions – across genders, roles, or seniority levels – can occur.

Without clearly defined salary bands, salary decisions are often made on an ad-hoc basis by individual leaders – which can lead to inequity and unfairness. And this isn’t just a theory: our research shows that forward-thinking companies that use salary bands find it easier to make equal pay a reality.

2. Helps you attract top talent

It’s becoming more and more common for candidates to  decide not to apply for a role because the job description didn’t include a salary. That means you could be losing a lot of potential candidates if you’re not telling them what you’re willing to pay. And no, “competitive” doesn’t really mean anything or make you stand out. 

Including a salary band with your job description gives potential new hires a clear idea of your budget. That means two things: 

• Yfirst, you won’t waste time with candidates who expect a higher salary than you can afford. 
• YAnd second, you won’t lose those candidates who are within your budget, but who might have been put off from applying if you’d simply talked about your “competitive salary” instead of being specific.

And not to toot our own humble horn, but here is a great example from a Figures job ad: 

💰 Compensation & Perks 🎁

You can find all details about our compensation policy here.

• On-market salary. We target the market's 50th percentile using data from the best benchmark on the market.

👉🏼 The estimated salary for this role, for someone Annecy-based, is between €54,000 and €65,000 base salary.

• Above-market equity. We allocate 14% of our company towards employee grants, which is considerably above market practices (the average equity pool size is a bit less than 10%).

👉🏼 0.16% to 0.26% ownership of the company, depending on your seniority level (≈ €750k-1.3M in case of a €1B exit).

3. Provides a clear framework for progression

A salary band structure is a clear framework that shows employees exactly where they sit in your organisation’s hierarchy, and how they can grow within it. That means that not only do salary bands make it easier to attract top talent, they can also help you to retain and engage the staff you already have.

An employee's position relative to the midpoint – the market rate – typically informs both whether a pay increase is warranted and how large it should be. Someone sitting well below the midpoint, for example, might be eligible for a larger adjustment than someone already at or above it.

A well-designed band structure also shows employees the competencies and criteria required to progress to the next level – not just where they are now, but what they need to do to move up.

Salary bands also make pay and compensation reviews a much simpler process for managers and HR, because there’s a clear framework that underpins every decision.

4. Promotes transparency and fairness

Pay transparency has become a bit of a buzzword in HR. But it’s no good just talking about it if your company doesn’t have a strong compensation strategy that truly promotes it from the top down.

Using salary bands to create a transparent compensation framework shows employees that they’re being paid fairly. And, with the EU Pay Transparency Directive set to take effect in June 2026, this is no longer just a nice-to-have.

The directive requires companies to disclose salary ranges in job postings and share pay information with employees on request. Organisations with 100 or more employees must also publish regular transparency reports demonstrating pay equity compliance.

Where those reports reveal a gender pay gap of 5% or more that cannot be justified by objective criteria, the employer must carry out a joint pay assessment and take corrective action.

 Setting up a fair, transparent salary structure now is a great way to get ahead of things.

5. Reduces the possibility of bias

As we’ve mentioned, when you don’t have a clear salary structure in place, pay decisions are often made by individual managers on an ad-hoc basis. And one manager’s approach to setting salaries might look very different from another’s.

In fact, without the structure salary bands provide, there’s a lot of room for unconscious bias. Think this isn’t a problem in your organisation? Think again. It’s called unconscious bias for a reason, and unfortunately, we all have it.

However, that’s not to say that we can’t work to ensure it doesn’t impact our pay decisions. And setting up salary bands is a good place to start.

6. Makes it easier to plan your budget

It’s no secret that many companies are under pressure to do more with less. HR and compensation leaders need to balance rewarding employees for a job well done with sticking within the budget they have available.

Here’s the good news: using salary bands can help make budget planning more straightforward and reliable. For example, it’s easy to understand how hiring decisions will impact your overall spending, because the salary band for each role tells you the maximum you’ll pay for a new recruit.

But the benefits go beyond individual hires. Salary bands allow HR and finance teams to predict total salary expenditure across the organisation and align it with annual budget cycles – turning compensation from a reactive cost into a planned investment.

7. Simplifies administration and communication

Companies without a structured salary band system in place often find that their salaries are… all over the place. Each team might have employees on multiple different levels, even when some of them are effectively doing the same work.

Even setting aside the potential for unfairness, this is a lot to manage. Salary bands lessen this administrative burden, simply because there are fewer levels and pay ranges to keep track of.

Plus, salary bands can also simplify communication around pay: instead of having to go to great lengths to justify each pay decision to employees, managers can simply point to the clearly set-out framework by way of explanation.

3 disadvantages of salary bands

At this point, you’d be forgiven for thinking that salary bands were the perfect solution for every organisation. But there are two sides to every story, and salary bands do come with certain downsides too.

Here are some of the disadvantages of salary bands that you should know about.

1. Increased administrative burden

Wait – didn’t we just say that salary bands could reduce the administrative burden on your HR and compensation team? Well, yes – in the long term. But there’s no denying that setting up salary bands is a big job.

To begin with, your HR team will need to decide what bands they want to create, and in what detail. They’ll also need to create a levelling framework that helps structure each salary band. In practice, this means benchmarking each role against market data to identify the midpoint (market rate) for each level, then setting the minimum and maximum as fixed percentages above and below that point.

And of course, you’ll need to complete your salary grid with accurate, real-time data to ensure your salaries are in line with the market. Most companies should review and update their salary bands at least once a year, if not more frequently. This keeps your ranges competitive and avoids the kind of drift that can quietly undo all your hard work.

If that all sounds a bit much right now, don’t worry – but do keep reading to the end to find out how Figures can make all of this a bit easier.

2. Need to complete pay reviews

It’s no good setting up a complex salary band system for new hires if you’re not going to adjust your existing salaries. All this will do is create resentment among your current employees – especially if they feel they’re not being paid at the market rate.

That means that, once you’ve built your salary bands, you should evaluate whether your existing salaries are aligned. It’s very possible that you’ll spot some gaps and need to make compensation adjustments – that’s why you’re going to all this effort in the first place, after all!

Of course, these adjustments might impact your budget – but that’s all part of the process of building a fair and equitable compensation structure.

3. Limits flexibility

For certain companies, salary bands can add an unnecessary rigidity, which can be a hindrance in the recruitment and attraction process.

For example, companies in high-tech industries or those seeking in-demand talent might find that market salaries are moving upwards at a faster rate than most companies update their salary bands. That means that, if you built your salary bands 11 months ago, you might miss out on a top candidate today simply because the market has changed.

When a candidate's or employee's market value exceeds the band maximum, the company has three options: adjust the band, apply an individual exception (sometimes called red-circling), or accept the risk of losing that person.

The solution to this is fairly simple, although it does require more work: update your salary bands more frequently, and base them on market data that’s as close to real-time as you can get.

4. Only applies to base pay

It's worth remembering that salary bands cover base salary only. They don't account for variable pay components like commissions, bonuses, or equity.

For roles where variable pay makes up a significant chunk of total compensation – think sales, for example – the band alone won't reflect how competitive a package actually is. So if you're advertising those roles, make sure you're transparent about the full picture, not just the base range.

So, is creating salary bands worth it?

As we’ve discussed, salary bands promote pay equity, drive transparency and attract top talent. But it does take time to transition to this new system – which puts a lot of HR and compensation leaders off from taking the plunge.

Listen, we’re not going to sit on the fence and pretend we’re not big fans of salary bands. We are – that’s why we’ve created Figures Salary Bands so that every company can build a fair, structured compensation strategy, without the headache.

Using our salary band tool, you can easily create a customisable and flexible salary grid that’s in line with your organisation’s compensation philosophy, in a fraction of the time. You can tailor your ranges to the market position you’re aiming for, and adjust the width and overlap of your bands however you like.

Put simply, Figures makes it easy to create a single source of truth for all salary decisions – giving your employees the fair and equitable pay structure they deserve.

Want to learn more? Book your free demo to get started.

How to create salary bands

Once you've weighed up the pros and cons, you might be wondering where to actually start. Here's a quick overview of the process – think of it as the highlight reel before the deep dive.

1. Define your job levels and grading framework. Group roles of similar scope and responsibility into grades – this is the skeleton your salary bands will hang on.
2. Benchmark each role against market data to identify the midpoint for each level. The midpoint represents the market rate and acts as your anchor point for the band.
3. Set the minimum and maximum as fixed percentages above and below the midpoint. Most companies use a spread of 20–30%, though this can vary by seniority.
4. Audit existing salaries against your new bands and address any gaps. Some employees will fall outside the ranges – flag them and plan adjustments over one or two review cycles.
5. Schedule annual reviews to keep your bands aligned with the market. Salary data shifts constantly, and bands that aren't maintained will lose their value fast.

For a detailed, step-by-step walkthrough, see our salary band creation checklist.

Ready to build salary bands that actually work?

Figures makes it simple to create, manage, and share salary bands — all backed by real-time market data from over 3.5 million data points. No messy spreadsheets, no guesswork.

Book your free Figures demo and see how it works.

FAQs

What's the difference between a salary band, a pay grade, and a salary range?

A pay grade is the classification level assigned to a role – for example, Level 3 or Grade B. A salary band is the pay range (minimum, midpoint, and maximum) attached to that grade. A salary range is often used interchangeably with salary band, but can also refer specifically to the advertised range in a job posting.

What are salary grade levels?

Salary grade levels are a hierarchical classification system used to group roles of similar scope and market value, with a salary band assigned to each grade. Defining these levels is the first step in building a salary band structure – for more on how to do this, check out our [guide to job levelling](link to existing job levelling article).

What happens if an employee's market value exceeds the maximum of their salary band?

There are three typical responses: adjust the band upward if market data supports it, apply an individual exception (sometimes called red-circling), or regrade the role to a higher level. This is a recognised limitation of structured pay systems, and it's something every company using salary bands will encounter at some point.

What do salary bands look like in practice?

Here's a simplified example for a UK-based tech company. These are illustrative figures only – not real market data.

Each band's midpoint represents the market rate for that level. The minimum and maximum are set as fixed percentages above and below that point, giving room for experience, performance, and tenure to influence where an individual sits within the range.