Building a Solid Compensation Framework With Pay Bands

What Are Pay Bands?

Put simply, pay bands - often interchangeably known as salary bands - are defined pay ranges for jobs that are considered equal. An organization uses pay bands to establish the minimum and maximum amount they’re willing to pay for a job level, using these parameters as a decision-making tool when it’s time to to determine compensation for specific roles and individual employees.

Defining a salary band takes into account a combination of market value and internal value. Jobs with similar work requirements are grouped together based on factors such as the qualifications, skills, experience and level of decision-making authority required in a role.

Ideally, pay bands are coupled to grades from an analytical job evaluation or company-specific levels. Then, an appropriate minimum and maximum salary figure - calculated using market data - can be established to set out the limits of the pay band.

So, whilst all employees with the same job title won’t necessarily earn the same sum, they will all earn within the same salary band.

Of course, sometimes pay bands overlap. Take, for example, a company with multiple management positions ranging from entry-level supervisors all the way up to top-level executives. Each level on the scale would have its own pay band, but whilst Pay Band 1 might have a maximum pay of $50,000, Pay Band 2 might have a minimum salary of $45,000.

Typically, pay bands allow for more flexibility and differentiation in pay than a traditional salary scale, which sees a company set fixed salaries for specific job titles or positions.

How Are They Useful?

First up, pay bands are helpful in fostering pay transparency. By establishing clear parameters and set ranges of pay, organizations can be upfront about what they’re paying their staff - without necessarily disclosing individual salaries.

This is especially useful at a time when laws to strengthen pay transparency are emerging in New York City, California, the European Union (EU) Commission and beyond. These new regulations mandate that companies must post a role’s salary range in job postings.

Organizations with a solid pay band structure were ahead of the curve when these laws came into effect, making it easy for them to set and communicate pay ranges to prospective candidates.

Intrinsically linked to pay transparency, pay equity is another benefit of establishing salary bands. By using pay bands, employers can ensure that employees in similar roles with similar levels of experience and performance are compensated fairly and consistently. This can help to eliminate pay disparities and reduce the likelihood of discrimination based on factors such as gender, race, or ethnicity.

Another plus, pay bands can also motivate employees. Being hierarchical in nature, salary bands provide a clear path and incentive for career progression. Staff can see what the salary band above them looks like, and take necessary steps to make the jump up. Long-term, this can boost employee engagement and help companies retain talent.

Finally, salary bands help organizations translate hiring plans and employee raise plans into budgets. It also sets parameters to keep check of cost creep that’s associated with employees asking for raises. This is vital for forward-thinking hiring strategies and long-term financial planning,

How Do Companies Establish Pay Bands?

Traditionally, creating and maintaining salary bands takes extensive research and a whole lot of time.

First, a thorough analysis of pay in the sector is essential to establish salary statistics and ensure that employers are staying competitive with market rates. This can be done by sourcing relevant salary survey data from providers.

Next, organizations need to decide what constitutes equal job roles. More than intuition or guesswork, evaluating and organizing the complex web of roles in a company takes an objective job evaluation system. It’s only by rationally measuring and quantifying the relative complexity, degree of responsibility and amount of effort demanded by various  jobs that meaningful pay bands can be established.

Sounds complex? That’s because, honestly, it is! And, to complicate things further, pay bands require constant monitoring and regular adjustments. As external market pay rates constantly change in line with supply and demand, inflation and the rise of new job profiles, salary bands can quickly become outdated.

Unsurprisingly, setting and maintaining salary bands is often a serious time-drain for HR departments. So, is there an easier way to establish competitive and up-to-the minute salary bands?

How gradar’s Changing the Game

Here at gradar, we’re convinced that establishing salary bands shouldn’t be so difficult or time-consuming. It’s why our complete job evaluation tool is designed to help companies efficiently create a pay band framework based on objective job evaluation and market benchmarking.

Firstly, considering wider factors such as professional knowledge, specific responsibilities and interpersonal skills, gradar offers a deeply analytical and highly objective point-factor based approach to job evaluation.

These job evaluation results allow organizations to understand their internal relativities and determine which job roles are of equal value, ultimately giving them the information they need to group jobs into pay band levels.

Next, thanks to gradar’s job matching feature, users can translate job evaluation results into market benchmark job codes. This allows users to seamlessly access salary survey data within the gradar system. By tapping into market data, companies can establish competitive and appropriate pay parameters for each salary band.

Sounds like something that could work for your organization? Get in touch with our support team today!