What is a salary band?
Salary bands, also known as pay bands, are the salary ranges established for specific roles. However, different organizations may have different salary bands for the same roles. The salary range is established on the basis of the value that each role carries. This job value may further depend on the company’s internal value and the market value for the role. To make things more streamlined, companies categorize or group together different positions with similar work environments within one salary range. All these positions that fall in the same salary range are called salary bands and all employees with the same or similar job positions reside in the same salary band. For example, junior or entry-level employees will have one salary band while those above them in seniority level will have their own higher salary band.
What is a job grade?
Job grade is the level of responsibility or rank of an employee within an organization. Job grade is also sometimes referred to as job level or job classification, depending on the individual company’s preferred terminology. It defines the value of a job role or position according to the seniority level, expectations, and responsibilities it carries. As a general rule, the more experience required of a job role, the higher the job grade. So, a junior-level employee will have a lower job grade, but as they climb up the career ladder, move into a senior role, and take on more responsibility, their job grade will also move up. Here is an example of how companies define job grades depending on the level of the job:
- A1. Fresher. Still learning the basic skills.
- A2. Early in career. Basic skills developed.
- A3. Seasoned professional. Ample experience. Variety of skills developed. Knows the key to success of a project.
- A4. Senior professional. Has been face to face with most common problems and knows how to solve them.
- A5. Very senior or expert. Is considered a thought leader and can direct others to achieve the company goals.
- A6. Luminary, influencer, or leader. Knows how to manage entire teams and departments to fulfil the organization’s strategic business goals. Plays a key role in the company’s success and is often looked up to for guidance in their area of expertise.
Establishing pay ranges for a role
HR managers establish the pay range for any role in sync with the current market average. Usually, the traditional pay range for a job role is 30% to 40% of the average salary on both extremes—the lowest salary range and the highest salary range. Those in top management and executive roles or higher job grades can typically expect a more comprehensive pay range in the 40% bracket, while other job grades often have a range of 30% of the average.
The formula for establishing the pay range using the 30% method:
| Minimum salary = Average salary x 0.85 | Maximum salary = Average salary x 1.15 |
The formula for establishing the pay range using the 40% method:
| Minimum salary = Average salary x 0.80 | Maximum salary = Average salary x 1.20 |
For example, suppose you want to establish the pay range for a junior data analyst role. This is how you will calculate it: The average salary for a junior data analyst role is $68,073. So, the minimum salary, applying a range of 30%, would be $68,073 x 0.85 = $57,862 and the maximum salary would be $68,073 x 1.15 = $78,284. You do not necessarily need to use this traditional method. However, it can be a good starting point to get a rough idea of the current market value for this position. Then, you can adjust the pay range according to your company’s individual needs and budget. Related: Salary Range: Definition and How It’s Used by Employers
How to use pay ranges when hiring
Pay ranges and salary bands are how you establish the target pay for the employee within a job grade when they first start working with you. The pay range helps you decide the minimum and the maximum salary that you are willing to pay for the job role at a particular level. And, categorizing the pay ranges into salary bands helps you adjust compensations after factoring in the pay raises, performance bonuses, and future growth. For example, suppose you are hiring for an entry-level position in the creative department and the pay range for the junior art director is $37,614 to $50,890. What will your offer be? $37,614? No. You do not simply hire from the exact bottom of the salary band. You will have to consider the candidate’s education level, experience, work ethics, and other soft skills before making an offer. The general practice is to offer the average or mid-point of the salary range. The good thing about salary bands and pay ranges is that they give you flexibility. So, you can make an offer that the new hire truly deserves and keep scope for possible performance bonuses, mid-cycle raises, and promotions—all within your allotted budget.
Using salary bands in career progression
Salary bands allow the recruiting managers to offer a satisfactory salary structure to the employees while also keeping the company budget in check—even in case of fast career progressions or promotions. For example, suppose you want to fill a sales manager position and establish the salary range between $67,660 to $91,451; this means your offer for the starting compensation can be somewhere between the lowest salary and the average salary for the sales manager role within this salary band. The maximum salary is the amount that you will eventually pay the employee after giving them bonuses, raises, or promotions over the next few months or years working in that role. Other than that, salary bands can often overlap when it comes to candidates moving up the ladder in their career. For example, the salary band for a junior-level position can be $50,000 to $65,000 and the band for the next senior position can be $62,000 to $70,000. In such cases, the flexible nature of salary bands allows managers to promote employees without throwing off their financial plans and budget. So, if a salary band overlap happens, you can:
- promote employees up the career ladder to the next higher band without increasing their salary (since there is an overlap). Although, do note that their potential salary still increases due to a higher maximum pay within the new band.
- provide merit-based bonuses to deserving employees without offering them a promotion that they may not be ready to handle.
