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.
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.
Salary bands are typically structured using minimum, mid-point, and maximum values:
The main factors that influence salary bands are:
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.
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.
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.
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 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.
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.
Ready to create your salary bands for the first time? Here’s what
Here’s what you’ll need to get started:
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.
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.
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 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.
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.
Fairness and equity are key cornerstones of salary band implementation. Here’s how HR managers can ensure these principles aren’t overlooked:
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.
Solution: Regularly review your salary bands (at least annually but preferably every six months) using up-to-date and reliable benchmarking data.
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.
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.
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.
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