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.
Employee compensation is your biggest operating expense, yet compensation decisions are often ad hoc. New hires may be offered a certain percentage over their last salary, which can perpetuate pay gaps and may even be illegal in your area. Current employees may receive a sizeable counteroffer when they threaten to leave for an opportunity with better compensation. Newer employees may earn current market rates, while tenured employees earn significantly less. These one-off decisions can damage your company’s ability to attract and retain talent—and may even land you in legal trouble. Enter: pay bands. Pay bands can help your organization make more strategic decisions around compensation, so you can manage your largest operating expense with care.
Pay bands refer to the target compensation range your organization will pay for a given position or job grade. They are also referred to as salary bands, pay ranges, and salary ranges.
In the example below, there are six job grades, and corresponding pay bands, for marketing employees. Entry-level employees—perhaps marketing assistants or coordinators—typically fall into the lowest pay band. Employees with greater seniority and impact—such as your marketing leadership—would fall into the higher pay bands. The pay bands take into account the low-end and high-end of the pay each level will command.
Within each pay band, there is room for the employee to earn a higher salary, based on factors like performance and tenure. This allows you to reward—and retain—employees, even if they’re not quite ready for a promotion yet.
Pay bands are a basic building block of your compensation strategy. They help with:
If your company is like most organizations, the human resources team is responsible for creating pay bands in consultation with the leadership team. Here’s what you should look for when planning, reviewing, and approving your organization’s pay bands:
The care and thought you put into compensation can become your company’s competitive advantage. Salary bands are an essential building block to a strong compensation strategy that will attract and retain talent, guide pay equity, reduce liability, and help you plan for the future. If your organization doesn’t already have a formal strategy, there’s no better time than now to discuss this with your HR team. If you do, it can be helpful to check in with your leadership team to ensure it’s up-to-date. The market moves quickly, and there’s simply too much at stake to let your compensation plan become stale.