They seem simple enough at face value, but creating salary bands isn’t easy. It’s like building a product—the first iteration is going to be terrible. Salary band management takes multiple iterations and rounds of feedback. You have to stay on top of it.
Plus, there are pros and cons to using them. In this guide, we’ll take a look at salary bands from all angles so you can decide if they’re a good fit for your company.
When Are Salary Bands Worth It?
Before we dig into this question, here’s a quick summary of pay bands, as they’re sometimes called.
A salary band is a structured range of pay rates for a specific role within an organization. Businesses that use them usually have one salary band for each level within a role.
A single role might be split into three to six (or more) levels to define an employee’s progression. Each level then has its own salary band with a minimum, midpoint, and maximum pay rate.
Here’s a super-simple example of what salary bands might look like for one role—project manager—at a fictional market research company.
Project Manager I
- Level: Junior
- Min. Salary: $50,000
- Midpoint Salary: $60,000
- Max. Salary: $70,000
- Job Requirements: Assists with project planning and coordination, supports senior team members
Project Manager II
- Level: Mid
- Min. Salary: $70,000
- Midpoint Salary: $85,000
- Max. Salary: $100,000
- Job Requirements: Manages mid-sized projects, oversees project teams, ensures project milestones are met
Project Manager III
- Level: Senior
- Min. Salary: $90,000
- Midpoint Salary: $110,000
- Max. Salary: $130,000
- Job Requirements: Leads large and complex projects, strategic planning, and client management
So why do people use salary bands?
We often see them in larger corporations and organizations with tons of employees. Think nonprofits, school districts, universities, and hospitals. Using salary bands is a way of corralling job descriptions and wages into tidy boxes. Instead of leaving salaries up to benchmarking and a pinch of intuition, there’s a formula to refer to.
Many businesses promote employees from a minimum to a midpoint salary—or from one role level to another—after a performance review.
Salary bands are a traditional type of pay structure. This is in contrast to other popular methods, like market reference points and broadband pay. Here’s a quick comparison of these three ways to determine compensation:
Market reference points (spot rates): Bases pay on the market average for the role in any given month or year.
- Example: A tech company wants to hire a marketer. After doing some compensation benchmarking, they learn $75,000 is the average for a role as a marketer for a tech company. They base the salary for their new role on this market reference point.
Broadband pay structure: A relaxed version of salary bands with a huge amount of leeway.
- Example: A tech company wants to hire a marketer. Benchmarking says $75,000 is the average, so they decide to set the low end of the pay grade at $60,000 and the high end at $120,000. Depending on their experience, the new hire may begin at $60,000 or $70,000. They’ll be encouraged to develop new skills and push themselves to move fluidly through the band toward the top range.
Salary bands: Pay is informed by the market average for a role, but not strictly based on it. Bands are kept tight and small, with clear steps employees can take to move from the minimum to the midpoint and then the maximum salary.
- Example: A tech company wants to hire a marketer. With benchmarking showing average pay for the role at $75,000, they decide to create four levels within the marketing role. Level I will begin at $60,000 for the minimum salary, $70,000 for the midpoint, and $80,000 for the maximum.
Of the three, salary bands are the firmest. They’re a reliable and predictable method that go far in helping large organizations manage wages for their many employees.
But they’re not a set-it-and-forget-it strategy.
Managing Salary Bands: An Overview
There’s a lot you have to do to build and maintain pay bands. Here’s a quick look at the process:
- Conduct compensation benchmarking: Analyze market data from other employers to identify an ideal overall salary range for each role in your organization. Take a look at other employers’ levels and salary bands within each role.
- Pin down your compensation philosophy: Now that you know what the market looks like, define your compensation philosophy. Do you want to lag the market? (Probably not). Do you want to meet it right where it’s at? Or do you want to lead the market? Our guide to creating a compensation philosophy can help you decide. Whatever you choose, let that philosophy guide every choice you make.
- Get familiar with your organization’s finances: How much of your organization’s budget can go toward salaries? It’s important to know this before you create pay bands.
- Determine your job levels: Look at your current roles and the ones you aim to add soon. Study the job descriptions. Review performance evaluations to understand the skill range needed for each role. Break each role down into levels, each with its own salary band.
- Communicate with your team: Make sure your salary banding strategy is transparent, especially if it’s completely new. Communication goes a long way here.
- Review and update salary bands regularly: Re-visit the bands once or twice a year or whenever there’s a big change at your company—whether it’s a good or bad one. Check your market data and finances again, updating the bands accordingly.
This work isn’t for the faint of heart. But for many organizations, it’s worth it.
Here’s why.
3 Advantages of Salary Bands
1. Employees Have a Tangible Career Progression
One of the best things about salary bands is they provide employees with a roadmap for career advancement within your company. You can (and should) give your team easy access to the roles and levels that are relevant to them. They can check the requirements for the next level up and work toward meeting them.
And all of this can begin on Day One. Let’s say our fictional market research company hires someone to fill the Project Manager I role. Based on the candidate’s experience, you decide to start her on the midpoint salary for that level—$60,000 a year.
Your new hire can see that if she proves herself to be a hardworking assistant to the senior-level marketers, she can start to take on small projects.
Within six months, she makes a name for herself as a punctual and creative employee. She jumps at the chance to take on more responsibility. It’s clear to you that she’s ready for a promotion to Project Manager II—and the $70,000 salary that comes with it.
If your new hire didn’t have a clear road to higher compensation, she might start her job wondering how to prove herself worthy of a promotion. Without any guidelines to look at, she’d have to worry about how to bring the topic up to you without seeming pushy. She’d do her best in her new role, of course, but might feel adrift trying to pull apart the branches and envision her path forward.
2. It’s Easier to Keep an Eye on Pay Equity
Salary bands make it easy to stay on top of pay equity. They make sure that employees in similar roles are paid within the same range, which reduces the risk of unfair discrepancies.
This structure also helps eliminate unconscious biases that can occur during salary negotiations. You can tell your new hires and employees exactly why they’re getting paid what they are. There’s little room for subjectivity.
With regular salary reviews and pay band adjustments, you can keep your company’s pay equity balanced.
3. Salary Bands May Boost Retention
When salary bands are part of an overarching payroll transparency policy, they can help drive retention rates.
A 2022 study published in Employee Relations found a small but statistically significant correlation between pay transparency and retention. In the words of the researchers—Rosanna Stofberg, Mark Bussin, and Calvin M. Mabaso—the correlation indicates that “increased pay transparency is associated with lower job turnover intentions.”
Increased retention, in turn, means you:
- Lose fewer of your top employees to the competition
- Spend less on recruiting, hiring, and training costs
- Always have employees on staff with deep institutional knowledge
Salary bands are just one piece of the payroll transparency and retention puzzle, though, and they come with a few downsides.
3 Predictable Pitfalls of Using Salary Bands
#1. Unclear Criteria for Job Levels
Okay, hear me out: yes, you can add criteria for job levels. But the criteria are really just a general overview. A set of bullet points. A one-sentence summary. They don’t convey nuances very well.
Managers may interpret the criteria in different ways, which isn’t so great for pay equity and fairness. Plus, how do you know when to graduate someone from the minimum amount in a pay band to the maximum amount?
A manager’s intuition and objective opinion, that’s how. Again, this is a big minus point on the pay equity scale. Sure, you might have an objective paper trail, but the pay is unfair because the bands aren’t interpreted consistently.
Management roles tend to be easier to assign to salary bands. As the job increases in scope, the pay goes up. Easy. But individual contributor roles are harder to define. What’s the difference between a junior writer and a staff writer and a senior writer?
It’s really hard to distill these differences in a few bullets and have everyone agree.
Here are a few tips to help make your salary bands more objective:
- Analyze each role and develop a competency framework for it. Sit down with your job descriptions and think about what competency looks like for each level within a role. What are the required skills, qualifications, behaviors, and responsibilities must the employee possess to function at a specific level?
- Benchmark your industry and your company. Look for other companies with job descriptions similar to yours. Use these as inspiration to refine the competency framework for a role. Then, look at job descriptions within your organization. Are any of them similar enough that they require the same salary band structure to prevent inequity?
- Use concrete performance metrics. Identify relevant metrics to measure performance. Make sure they’re relevant to your industry. A marketing company, for instance, might use metrics like project completion rates, sales targets, and customer satisfaction scores.
The key to avoiding unclear criteria is to drill down into each role, make the criteria as granular as possible, and document it for everyone to see.
#2. Starting With Too Many Job Levels
If your organization is new or you’re introducing salary bands for the first time, it can be tempting to go overboard with the job levels.
People think it’s helpful to divide roles into four, five, or even eight levels because it makes career paths clearer. Or because it ensures fairness. But remember: each level has its own salary band with three tiers—minimum, midpoint, and maximum salary. And if you follow our advice, you’ll need to create in-depth criteria for each level.
That’s a lot of work. It’ll get overwhelming quickly, and that might lead you to give up with salary banding altogether.
Instead, start simple. Identify two or three levels for each role. As you regularly review your salary banding strategy, you can add levels if you need them. But we think you’ll find that sticking to three or fewer levels makes the most sense.
#3. Giving Out Senior Roles Too Quickly
Levels are exciting for your employees. When there’s a clear path forward, career-wise, they might put in extra work to move through the salary bands and levels faster. No one wants to be a junior anything for very long.
But this eagerness can put employers in a situation where they find themselves handing out senior roles like candy on Halloween. It’s how businesses end up with 47 VPs. (Okay, maybe a few less than that.)
Here’s how to avoid this pitfall:
- Create clear criteria for promotions: Define objective criteria for senior roles and communicate them to your employees. Make sure the criteria go beyond performance. Consider focusing on things like measurable leadership abilities and an employee’s long-term contributions to the company.
- Use a thorough review process: The decision to promote someone to a senior role should go through multiple hands. This helps ensure the promotions are well-deserved and aligned with what your organization needs. They also help prevent pay inequity. If multiple people must look at criteria and make a decision, they can check each other’s biases.
- Reward development without inflating someone’s title: Remember that salary banding is just a way to address base wages. If you’ve created a payroll budget the right way, you’ve left room for things like bonuses and pay raises within a level—i.e., from one salary band to another. Use these to reward an employee’s progress as she works toward seniority.
With these tips, you won’t feel pressured to graduate people to the next level prematurely. And remember: managing salary bands is far easier when you use payroll software designed to keep up with different roles, structures, and levels. See our favorite payroll software here.
