At Compaas, we talk a lot about salary bands and job grades (or salary ranges and job levels). Not only in blog posts, but every single day. Salary bands and job grades are essential frameworks in any compensation strategy. We use them throughout our compensation management software to help companies dig into how they pay their employees.
Job grades clarify your expectations and help you make more strategic compensation decisions.
Salary bands are key for planning and communication.
Here’s the basics on how they work together as the foundation of your compensation strategy.
A job grade could have the name “job level” or even “job classification,” depending on the company. No matter which name you use, the concept is the same. A job grade is a method to decide the impact, seniority, and expectations for a specific role. In the best cases, a job grade will reflect knowledge, skills, and responsibility.
Think of it this way: when someone is early in their career, we sometimes think of them as “junior” employees. After gaining experience, they move into a “more senior” role with more responsibility.
Let’s look at an engineering organization for an example. We must clarify expectations for a “junior engineer” vs. a “senior engineer.” Both are engineers, but their job demands are very different. We’ll define our Technology Job Function with six levels: T1-T6.
The same concept applies to each department within a company. What are the basic progressive steps along a professional career? How do they translate to the company’s expectations for employee success?
Sometimes, but not always!
In some companies–and in government–job titles say a lot about seniority levels. You would immediately know from the title “Staff Engineer” that an employee is an E5. This is common in companies where job levels are open, and any employee can discover another’s level.
Titles don’t always confer deeper meaning, though. In my career I’ve had some unusual job titles, which I generally chose for myself. They have ranged from Data Diva to Geek Wrangler, none of which reflected a job grade. In those companies, job levels were completely opaque. I didn’t even know my own job grade—though in retrospect, I realize that I did have one.
Finally, you can have both an internal title and an external title. A title may be nothing more than a handy label for people outside the company. I’ve worked with people who put “Vice President” on their business cards, even when we had no VP roles. Those Titles fostered credibility, in roles where people might demand to speak with “someone in charge.”
Salary bands (or pay ranges) are how you define the target pay for employees within job grades. For each Level, a company should decide the low-end and high-end of the pay that level will command. Salary bands help when making offers, retaining employees, and planning for future growth. (As a reminder, if you’re affected by CA AB-168, you must share pay ranges with candidates upon request, too.)
I’m going to make up some salary bands for the technical job grades we covered above, so you can see how it works. (I’m not using market data for these sample ranges, so don’t copy this for your company!)
I can’t tell you the best way to set your company salary bands. But I do have a few suggestions to get you started.
There are lots of great sources for market data for employee salaries. In our experience, smart companies set their salary bands from more than one data source. These include:
With more than one data source, you can tailor salary bands that reflect your company goals and focus.
When your salary bands overlap (as they do in the example above), your company has more flexibility. Employees can receive merit raises without taking on promotions they’re not ready to tackle. Managers have the option to promote mid-cycle without throwing off financial plans. Employees have some runway to grow in their current level without a constant focus on promotions.
A wonderful thing about salary bands is that you have flexibility. You don’t have to hire people at the bottom of the salary band, and in fact I don’t recommend hiring at the dead-bottom of the range in most cases. When salary bands are fairly wide and overlap, the target ranges for new employees is often more narrow. Using the example above, the company may decide that new-hire salary targets for a T4 may be between 105k–112k.
You’ll also encounter some candidates who negotiate aggressively, pressing you to break out of the top of the new-hire salary targets. With hiring target salaries at a narrower range than salary bands, you again have flexibility. There’s some headroom to decide if this candidate is being offered the correct role, and how high you really want to go. Think hard about how you can make this candidate successful before you make that offer, however. Going to the top of the actual salary band can put you in a bad spot down the line—weighing a promotion to get the employee a higher salary, instead of focusing on performance and impact.
Salary bands affect your existing employees, too! Once you have set your salary bands, you’ll want to take a hard look at how your employees measure up. At a minimum, you’ll need to take a look at Compa Ratios, where individual employees fall within a salary band (a.k.a. range penetration), and manager distributions for your company. You can also expect to see some outliers once you dig into your employee compensation.
(If this analysis sounds like a lot of work, it doesn’t have to be. Compaas makes it easy—even including employee bonus and stock in the mix!)
You don’t want to change your salary bands all the time, but plan to revisit them at least once a year. This helps you keep up with what’s going on with the market, and make sure you don’t fall behind.