Psst… check out this compensation dictionary for more HR jargon you can learn!
If you’re in the business of giving or receiving (or hoping to receive) an annual merit increase, it’s a good time to get familiar with pay bands. Pay bands — a term that is sometimes used to lump broader terms such as pay levels, ranges or grades — is a component of an organized salary compensation structure. For example, an administrative position at a software company might include receptionists, office assistants and executive assistants. Those jobs are categorized together and given a predetermined minimum and maximum (Pay Band 1 = $12-$18 per hour).
As the pay band number increases, job responsibilities correspondingly increase. (Pay Band 2 = $15-$24 per hour). Organizations with pay band structures in place allow managerial control and discretion to reward exemplary employees while keeping within a predetermined budget.
A Manager’s Guide to Pay Bands and Pay Scales
Pay bands differ from pay scales, which typically appear during the job offer stage of salary negotiations. Pay scales take similar jobs and provide a minimum and maximum to help guide both parties when making, countering or accepting an offer. Pay scales provide insight into what a peer might be being compensated in a similar role.
- Pay Bands set and rank jobs by experience, education and responsibility within the organization. The structure is determined based on multiple factors and assigned pay grades should correlate with the salary range for the position with a minimum and maximum.
- Rate Range refers to the minimum, maximum and midpoint of salaries for jobs within the same Pay band.
- Job Pricing involves researching and establishing Rate Ranges for each grade. Employers should regularly review wage and salary data to compare salaries in the market to their organization.
- The Midpoint isn’t just the middle of the range. The mid point refers to the actual rate of pay a qualified employee with all the right credentials and experience performing at a satisfactory level should be paid between the minimum and maximum.
[Related event: Looking to develop a new comp plan or revamp an existing one? Come to our annual event on compensation – Compference – to get ideas from your peers and industry leaders on what’s possible with your comp plan.]
What if My Pay is Outside of the Pay Band?
An employee whose salary falls above their pay band must move to a different pay band through a promotion or job change in order to receive a salary increase. They might receive a lump sum payout twice a year in the form of a bonus. The downside to this method of compensation is that their overall salary doesn’t increase and the lump sum payout is typically taxed at 40% because it is considered a bonus. Pay Bands are also regional as well. These are adjusted for geographic differences in the standard of living for a location. That’s why doing your research to understand the market rates for average salary by position and types as well as geographic region are so very important.
Chances are if you work in HR, you’ve seen and dealt with employee and manager pay band questions before. Or maybe you’ve spearheaded compensation studies and pay band evaluations at your organization. It’s a complex topic that deserves more education and conversation among our managers and employees. After all, compensation is the reason that the majority of us work, and it a quietly discussed topic where we often go through the motions explaining. And yet, it’s an important conversation to have with your employees as questions arrive and during annual review periods.
Are you talking about Pay Bands and Pay Scales at work? How do you communicate the process and salary levels with your team? Leave a comment below and let inquiring minds know.
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