What are salary bands?
Organizations use salary bands, also known as pay ranges or salary banding, to define the minimum and maximum compensation for specific job levels. These ranges play a crucial role in your company's compensation strategy, helping you make informed decisions during hiring, performance management, and career development processes.
In simpler terms, establishing and openly communicating salary bands can benefit your organization by attracting and retaining top talent, as it brings a level of transparency for employees and prospective hires. Furthermore, salary bands help tackle pay parity and can aid in promoting diversity, equity, and inclusion (DEI) within your organization.
Examples of Salary Bands
Salary bands vary by industry, location, and many other factors we will explore later on. Here are a few examples of salary bands as it stands today. Please note these are sample ranges based on general market research and should not be taken as definitive figures. Actual salaries may vary significantly depending on the factors mentioned above.
- Chief HR Officer (CHRO) in Singapore: SGD 250,000 - SGD 500,000+ (Highly dependent on company size, industry, and experience)
- HR Generalist in Hong Kong: HKD 350,000 - HKD 500,000 (Experience and qualifications can significantly impact this range)
- Onboarding Specialist in Kuala Lumpur: MYR 45,000 - MYR 65,000 (May vary based on company size and industry)
- HRIS Analyst in Bangkok: THB 600,000 - THB 800,000 (Specific skills and experience in HRIS software can influence this range)
Determining Salary Bands
Determining salary bands is dependent on a number of factors, including market rates and job scope. There is no perfect formula for determining salary bands, instead leaders should take a holistic look at the following factors to help determine the appropriate salary bands for roles within their organization. Getting your salary banding strategy right will help attract top performers and remain competitive in the job market.
Market Data
There are 3 key areas to consider when determining your company’s salary bands, the first of which being market data. These are the external elements that will contribute to calculating your salary bands.
Industry standards: Research the average salaries for similar positions within your industry, considering both national and regional variations, seniority level, and any particular niche the role you’re salary banding for might entail.
Job market demand: Analyze the current demand for the specific role you’re determining the salary band for. For roles that are in higher demand, it may justify a wider or higher salary band to remain competitive and attract the top talent for that particular skill set.
Geographic location: In the world of remote work, geography can play a big role in salary banding. Account for the cost of living differences in the regions you are hiring and creating a salary band for. Salaries typically need to be adjusted to reflect varying living expenses.
Internal Factors
Internal factors are the information unique to your organization or particular role you are creating the salary band for. These factors should be taken into consideration along with the market data to help determine your salary band.
Job evaluation: Define the responsibilities, required skills, and experience level for the specific job role within your organization you are salary banding for. A role that has an industry standard of S$6,000 monthly salary but requires a special certification or additional experience in order to fill the need within your organization may warrant an increase in salary band.
Internal equity: Ensure pay bands are fair and consistent across similar positions within the company to maintain employee morale, uphold an inclusive and equitable workplace, and avoid pay parity.
Performance management: Consider your internal compensation strategy and performance management practices. Review how salary adjustments within the band might be linked to performance evaluations. For example, if your policy is to offer a guaranteed salary adjustment after 9 months when linked to high-performance, this should be taken into consideration when building your salary band.
Organization budget: Be realistic about your financial resources, HR budget, and the trajectory of your organization. Ensure salary bands align with your overall compensation and salary budget to avoid overspending.
Learn more: Tools and Tips for Building an HR Budget
Additional Considerations
Company size and growth stage: Smaller companies or startups might offer different salary structures compared to established corporations. Consider your organization’s budget restrictions, compensation strategy, and funding calendar when salary banding.
Benefits: Remember that salary bands and compensation are holistic, meaning employee benefits contribute to compensation. Do you offer a hybrid work structure, mental health days, learning and development programs, or any additional perks? This overall compensation package should be considered, including benefits alongside salary bands.
Additional resource: Employee handbook template
Competitiveness: Aim to offer salaries that are competitive enough to attract and retain talent within the market. You’ll be able to determine what is considered competitive by factoring in all of the above research to help benchmark your salary band.
Difference Between Salary Bands and Pay Scales
Both salary bands and pay scales are used in setting employee compensation, but there are some key differences between them. Salary bands offer a broader range of acceptable salaries for a specific job level or group of similar jobs. This allows for some flexibility in setting individual salaries within that range, and are often used in conjunction with job grades, which group similar jobs based on their level of responsibility and complexity. Each job grade can have its own associated salary band. Whereas a pay scale typically refers to a more specific range of salaries for a single job title or a very narrow group of similar jobs. It often includes defined increments within the range, like steps on a ladder.
Salary Band vs. Payscale Example
Scenario: A company is determining compensation for HR Generalists with 2-4 years of experience.
Salary band
Salary band: $55,000 - $65,000
Justification: This band reflects the average market salary for HR Generalists with similar experience in the region. The company can consider factors like individual performance, specific skills, and certifications when setting salaries within this range.
Pay scale
Step 1: $54,000 (Starting salary)
Step 2: $56,000 (After 1 year of satisfactory performance)
Step 3: $58,000 (After 2 years of satisfactory performance)
Justification: This pay scale offers a more structured approach, with defined salary increases tied to time and performance. It provides clear expectations for career progression and salary growth.
Benefits of Using Salary Bands
Transparency and Fairness
Salary bands provide employees with a clear understanding of the pay range associated with their job level. This transparency fosters a sense of fairness and mitigates the risk of unconscious bias in compensation decisions.
Flexibility
Salary bands allow your organization some flexibility when setting individual salaries within the defined range. This flexibility can be used to consider factors like experience, performance, skills, and certifications, leading to a more customized compensation approach.
Standardized Compensation
Salary banding helps ensure consistency in compensation across similar positions within your organization. This standardization minimizes the risk of internal pay inequity and promotes a structured compensation system.
Attracting and Retaining Employees
Competitive and transparent salary bands can be a useful tool in attracting and retaining top talent. In addition to offering competitive compensation, knowing the potential career progression within their salary band can motivate employees to stay with your company, giving them a clear path to growth and progress.
Budgeting and Cost Control
Salary banding provides a framework for budgeting and cost control related to compensation. By understanding the salary range for each position, you can better predict and manage your personnel expenses.
Learn more: HR’s Guide to Creating, Tracking and Implementing a Salary Budget
Performance-based Compensation
While not inherently linked to salary bands, they can be used to facilitate performance-based compensation. By setting specific criteria for exceeding expectations or falling below them, salary bands can provide a reference point for adjusting salaries within the defined range based on performance.
Additional reading: Pros and Cons of Performance Based Pay
Challenges of Using Salary Bands
Market Alignment
Outdated bands: Salary bands can become outdated if not regularly reviewed and adjusted to reflect changes in the market rate. This can lead to companies offering non competitive salaries, making it difficult to attract and retain top talent. Which is why it’s important to regularly audit your salary bands to remain competitive and relevant to the market.
Limited flexibility: Salary banding may not offer enough flexibility to accommodate exceptional candidates whose skills and experience exceed the typical level for the position. This can lead to losing valuable talent who command a higher salary than the band allows.
Performance Incentives
Limited differentiation: Salary bands may not provide enough range to adequately reward exceptional performance. This can discourage employees from putting in extra effort if the potential salary increase within the band is perceived as minimal.
Focus on seniority: In some cases, salary banding might be primarily linked to seniority rather than individual performance. This can demotivate high performers who are new to the role or lack seniority.
Communication and Transparency
Misunderstanding: If not communicated clearly, salary bands can lead to misunderstandings and dissatisfaction among employees. It is crucial to explain the rationale behind the bands, their limitations, and how individual salaries are determined within the range.
Loss of individual negotiation power: Salary bands can be perceived as reducing the room for individual negotiation during the compensation discussion. This might impact employee morale and the feeling of being valued based on individual merit.
Best Practices for Setting Salary Bands
Data-Driven
Market research and internal data is essential in setting equitable and data-driven salary bands. Conduct thorough research on average salaries for similar job titles in your industry and geographic location. Utilize reliable sources like salary surveys, competitor data, and government statistics to build an accurate picture of the market. Analyze internal compensation data to identify trends and ensure internal equity across similar positions. This helps maintain fairness and prevent internal pay discrepancies.
Transparency and Communication
Clearly communicate the purpose and rationale behind salary banding to all employees. Explain how salary bands are used and how they connect to individual compensation decisions. Make salary band information easily accessible to employees, through company intranets, handbooks, or internal communication platforms. This fosters transparency and reduces potential confusion.
Flexibility
Set a clear range for each salary band, allowing for some flexibility within the range to consider factors like individual experience, skills, certifications, and performance. Establish a clear process for handling exceptional candidates whose qualifications exceed the typical level for the position. This might involve seeking special approvals or utilizing alternative compensation strategies beyond the standard salary band.
Regular Reviews
Regularly review and update your salary banding strategy at least annually or more frequently if significant market fluctuations occur. This ensures they remain competitive and reflect any changes in market rates and internal factors. Continuously monitor external market trends and adjust salary bands accordingly to maintain competitiveness and attract top talent.
By adhering to these best practices, organizations can establish and maintain effective salary bands that promote fairness, transparency, and contribute to a strong overall compensation strategy.
Streamline Salary Banding and Compensation Management With Automation
Salary bands are a useful tool for bringing transparency and flexibility to your compensation strategy. Backed by market research, you can create a competitive and attractive compensation package to build high-performing and engaged teams.
Omni powers HR teams with easily accessible, real time data to fuel your salary banding strategy. Pull customized reports in a matter of minutes to review pay scales, compensation calendars, and employment data to inform your salary banding and ensure equitable and competitive compensation for your teams.
With localized payroll solutions, Omni helps streamline your payroll processes with automated payslips, tax calculations, and secure employee data for error-free and punctual payroll processing.
Further reading: Streamlining Payroll Processes with HRIS
Secure and centralized employee records allow HR teams to easily store, update, and communicate employee information across departments and with employees.
Omni makes it easier than ever to calculate accurate employee payments and tax calculations through automation that saves time and reduces errors. And with automated payroll information synchronization, end of month processing becomes a streamlined and seamless effort.
Book a demo with our team, or try out Omni for a free 14-day trial to learn how our HR solution can help you remain compliant and reduce your administrative workload for all of your payroll processes.
