Founders: we know you’re busy. But we also know you care about corporate governance and want to stay aligned with things that impact your business’ success. We created this series to help you understand compensation fundamentals, and why they’re important.
Job levels and pay bands are the building blocks of a strong compensation strategy. Together, they can help ensure pay equity, improve recruiting and retention efforts, and help you build a more transparent company culture. They should both be considered early in an organization’s life cycle, but pay bands will inevitably change with the market over time, while job levels are ideally built to scale so they remain fairly consistent over time.
It’s important to work with your HR team and managers to establish your job levels from the very beginning to prevent equal pay and career growth problems before they start. Here’s what you need to know:
Job levels, also known as job grades and classifications, set the responsibility level and expectations of roles at your organization. They may be further defined by impact, seniority, knowledge, skills, or job title, and are often associated with a pay band. The way you structure your job levels should be dictated by the needs of your unique organization and teams.
The simplest way to structure job levels is to bucket roles into three categories: entry-level, mid-level, and senior-level. This model doesn’t allow for much progression between levels, and people may stall in the mid-level—causing them to leave.
Some organizations expand this out by structuring job levels by title and experience:
This may work well if employees in your organization tend to follow a linear career path to climb the corporate ladder. However, it isn’t the ideal structure for teams with highly skilled individual contributors who have no desire to move into management roles, such as some technical talent.
For this reason, some organizations focus more on impact. For example, technical roles may fall into the following job levels:
In this model, a senior, staff, or principal engineer may be classified as T4, T5, or T6, depending on their level of impact to the organization, and could very well be in a job level above their manager.
Job levels help you make more strategic and consistent decisions around how you hire, engage, promote, retain, and sometimes even dismiss talent:
Developing job levels generally falls to the human resources team, often alongside company but founders are often involved on some level throughout the process. Here’s what you should look for when planning, reviewing, and approving your organization’s job levels:
In an organization’s early days, it’s very common to arbitrarily assign job levels and pay grades—but doing so may cause problems in the future. Over-inflating titles may leave little room for future hiring plans, and lead to inflated compensation. And, without a firm compensation strategy in place, decisions are made ad hoc—potentially leading to pay inequities as you continue to hire. Being intentional about job levels, and corresponding salary bands, from the start can prevent these issues, while also making it easier to attract, engage, and retain talent.
Read more in the founders series: