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09 Dec

4 Tips for Creating Effective Pay Bands

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If you have difficulties setting salaries and negotiating with potential hires, implementing pay bands may be a smart solution for you to implement. Pay bands are used so companies can determine how to allocate their financial resources effectively. Further, it assures upper management that they aren’t overspending in one position and under-spending in another.

In short, pay bands (or salary ranges) are how you define the target pay within job grades. It’s important to note that job grades and pay bands are different—job grades provide clarification on your expectations.

There are many advantages to pay bands including assisting with recruiting efforts, increased employee retention, and job offer acceptance. They also help with transparency and fairness with current and new employees.

Here are a few tips to help create effective pay bands.

Gather Salary Data from Multiple Sources

In an effort to create more desirable pay bands compared to competitors, it’s imperative that you source your salary data from a few places. To gauge industry standards, consider studying reports from salary survey data companies like salary.com.

If you’re new to this kind of pay structure, you’ll also want to look at your current employee roster and how you’re compensating the employees that are working for you. By doing so, you’ll gain a better understanding of how to compensate current and new employees fairly and consistently.

Another great resource is company recruiters. It’s important you lean on your recruiting team—they arguably have the most knowledge of industry standards and competitive compensation packages for specific positions.

Create Ranges within Pay Grades

Firstly, you’ll need to group together the positions that offer similar pay. Each of these groups is a different pay grade. Once your pay grades are set, you can begin setting the ranges.

For each range, you should outline a minimum, midpoint, and maximum pay range you are willing to offer for various positions. It’s ideal that you refrain from creating ranges that are too large as this may hurt your transparency and make it more difficult to negotiate.

Overlap Your Pay bands

An employee isn’t going to make the maximum compensation within a pay band or the minimum. However, if an employee is being compensated at the top of your range, it gives you some wiggle room to offer job promotions without increasing your salary.

This is what happens when pay bands overlap.

For example, the pay band for a software engineer may sit between $75,000 – $95,000 annually and the pay band for a lead software engineer may sit between $80,000 and $125,000 annually. This doesn’t mean an employee can’t get a pay bump, but it does show employees that they can grow within a company with their current skill set while still having to develop and refine other skills.

On the contrary, an employee can receive pay raises without receiving a promotion they aren’t ready for. This allows superiors to promote mid-cycle without having to make adjustments to financial plans and employees can grow financially while still working on their skills.

Conduct Employee Evaluations

The greatest resource you have is your employees. By conducting comprehensive employee evaluations, you’ll gain valuable insight into how those working for you feel about their pay and why they believe they should be compensated more.

If your pay bands are brand new, an employee evaluation will allow you to measure current salaries with those in the bands. Some employees may need to be compensated accordingly.

As mentioned previously, assuring your employees are compensated fairly will have a positive impact on retention.

Of course, you can’t necessarily conduct employee evaluations with newly hired employees, but you can review your pay bands with them during the onboarding process.

If you need further assistance, working with a professional employer organization (PEO) will help immensely. Your PEO can help jump-start your recruiting efforts by providing industry insights and resources like recruiting guides.

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