Table of Contents
Compensation isn't just about paying employees; it's about crafting a strategic framework that ensures fairness, transparency, and market alignment while supporting your organisation's financial sustainability.
Here's a quick summary of what we'll cover
- Learn how to create fair, competitive salary bands that attract and retain top talent
- Discover how to gather and interpret reliable market data for accurate compensation benchmarking
- Master techniques for defining job families and setting appropriate range spreads
- Implement a structured approach that balances internal equity with market competitiveness
- Gain practical strategies to communicate and maintain your salary bands effectively
What are salary bands and why do they matter?
Imagine trying to navigate a multilevel car park with no floor markings or numbers . . . confusing, right? That's what compensation feels like to employees without clearly defined salary bands. Also known as pay bands or compensation ranges, salary bands are structured pay parameters that categorise similar jobs based on their value and contribution to the organisation.
Picture them as the lanes on a motorway - each representing a specific job level, with clear boundaries and a defined direction. All lanes move toward the same destination: fair, market-aligned compensation that works for both employees and the business.
By defining clear salary brackets, companies unlock numerous strategic advantages:
🔍 Enhanced Pay Transparency – Employees understand where they stand within the compensation structure and what they need to do to advance. As Buffer discovered, when they made their salary formula public all the way back in 2013, implementing transparent bands means the number of compensation-related queries drop almost immediately.
⚖️ Internal Equity Assurance – Ensures employees performing similar roles receive fair and consistent compensation, reducing the risk of pay disparities that can damage morale and trust.
🪜 Clear Career Progression Pathways – Employees can visualise their compensation future with the company, supporting retention.
💰 Controlled Compensation Costs – Prevents runaway salary inflation and ensures alignment with business financials.
🤝 Support for Fair Hiring Practices – Structured bands minimise bias and enable consistent pay decisions across teams and departments, supporting diversity and inclusion initiatives.
Step-by-step guide to setting salary bands
Gather Reliable Market Data
Going back to the building a house analogy - imaging building a house using only one type of measuring tool. Regardless of what you're building.
You wouldn't trust the results, would you? In the same way, having accurate market data from multiple sources is the foundation of effective salary structures.
A single dataset can be misleading or incomplete - which is why savvy compensation leaders use multiple data sources to triangulate fair market value. This approach, called "data triangulation", creates a more comprehensive and accurate picture of the compensation landscape.
4 Salary benchmarking sources to consider when gathering your data
1. Traditional Salary Surveys – Salary benchmarking reports from older, established global firms like Willis Towers Watson, Mercer, or Radford McLagen Compensation Database provide methodologically rigorous data points, though the data may be 6 months or more behind current salary market movements.
2. Job Boards and Real-Time Postings – Platforms like LinkedIn, Indeed, and Glassdoor offer current insights into what companies are actually offering in the market today. This real-time visibility can be particularly valuable in fast-moving industries or for in-demand roles.
3. Government Databases – Reports such as the UK's ONS Annual Survey of Hours and Earnings provide reliable baseline data, especially useful for regional comparisons and understanding broader economic trends.
4. Industry Associations – Organisations like the Chartered Institute of Personnel and Development (CIPD) conduct specialised compensation surveys for their sectors, offering general insights for a broad range of roles or standard industries.
Define your Pay Philosophy
Your pay philosophy is like your company's compensation North Star - it guides every decision about how, why, and what you pay. Without this strategic framework, compensation decisions can become reactive and inconsistent.
Picture this: Two department heads are hiring for similar roles. Without a clear pay philosophy, one might offer top-of-market rates to attract premium talent, while another might lowball candidates to preserve budget. The result? Internal inequity, confusion, and potential legal exposure.
A well-crafted pay philosophy answers fundamental questions that shape your entire approach
- How competitive do we want to be in the talent market? Are you competing for the same talent as Google and Amazon, or are you targeting a different talent pool.
- What's the right balance between fixed and variable compensation? Some companies offer lower base salaries with generous bonuses; others provide higher guaranteed income with modest variables.
- Do we emphasise total rewards (bonuses, equity, benefits) or focus primarily on base salary? Deliveroo retains talent through exceptional benefits packages and equity grants despite offering modest base salaries compared to competitors. Surprised? You can read more about their benefits packages here.
Your pay philosophy should align seamlessly with your:
✔ Business model and growth stage
Early-stage startups might leverage equity heavily; established corporations might emphasise cash compensation and stability.
✔ Financial strategy
Companies prioritising profitability might position at market median, while those in aggressive growth phases might pay above market.
✔ Talent acquisition goals
Are you building a team of industry veterans or developing junior talent with high potential?
✔ Organisational culture and values
Does your company emphasise team success through profit-sharing, or individual achievement through performance bonuses?
Ultimately, defining your pay philosophy starts with a few fundamental choices: Will you compete on salary alone, or emphasise your mission, benefits, and career development opportunities? Are you looking to attract seasoned professionals from top firms, or grow your own talent through training and internal mobility? And just how transparent are you ready to be when it comes to pay across roles and levels?
Clarifying these decisions early helps align your hiring strategy with your broader business goals.
What is the Salary Benchmark Percentile Approach and How to Use It
When you're setting pay, using salary percentiles is a way to decide where you want to sit in the market compared to others hiring for similar roles. Percentiles simply show how your pay compares to everyone else’s - which means are you offering more, less, or right in the middle?
75th percentile - leading the market
- You consistently pay more than most competitors
- Common in high-demand fields like tech, biotech, and specialised financial services
- Attracts top performers quickly but can place pressure on profit margins.
50th percentile - matching the market
- You're aligned with the median salary for your industry and region
- Balances fairness with financial sustainability
- Often seen in established companies with moderate growth goals
25th percentile - following the market
- Typically suitable for startups, non-for-profits, or organisations with tight margins
- May emphasise equity, flexibility, mission alignment, or career development to offset lower cash compensation
- Often the Total Compensation package has additional incentives such as equity share or great perks that bigger, older businesses wouldn't offer
To craft a meaningful pay philosophy, bring together stakeholders from finance, leadership, and talent acquisition. discuss and debate which approach will suit your organisation and its people best. Document everything clearly - it serves as both a strategic framework and an implicit contract between your company and your people.
And work out how to communicate it!
Read about what an experienced Employee Reward & Comp Manager has to say.
Create Job Families
Organising roles into job families is like creating a well-designed city map - it brings structure, clarity, and logic to what might otherwise be a confusing landscape of individual positions. Okay so we've moved on from building a house, but let's keep going with this comparison.
A job family groups roles that share fundamental characteristics but may differ in level, scope, or specialisation. Think of it as a professional lineage that shows how roles evolve and relate to each other. This framework allows HR teams and Managers to create scalable, coherent salary bands across diverse departments and functions.
What makes a job family?
Roles within a job family typically have the following included:
- Rely on similar technical or soft skills
- Operate at comparable levels of responsibility
- Contribute to similar business outcomes
- Require parallel educational or career backgrounds
Be careful though, you'll need to understand the difference between Job Families versus Job Functions and Job Levels.
Example of a well-structured job family
Job Family = Marketing
Example Roles = Marketing Assistant, Content Manager, CMO
Key Characteristics = Creative communication, audience understanding, campaign management, startegy, reporting
When companies implement a clear job family structure, they discover significant pay inconsistencies for similar roles across their organisation. By standardising job families, they can resolve these inequalities but also create clear career mobility pathways for high-potential employees.
Setting Benchmark Salary Ranges for Each Salary Band
Setting appropriate salary ranges is like calibrating a precision instrument - it requires careful adjustment based on multiple factors. When defining each band, you're establishing the financial boundaries for similar roles while allowing for individual differences in experience, performance, and market value.
The Three Critical Reference Points
Every well-designed salary band includes three key markers:
- Minimum: The entry-level pay for someone who meets the basic qualifications for a role within that band. Think of this as your "meets requirements" compensation level.
- Midpoint: The market-aligned salary that represents the expected value for someone fully proficient in the role. This usually aligns with your chosen market position (25th, 50th, or 75th percentile).
- Maximum: The upper boundary for highly experienced professionals who consistently exceed expectations. This creates a ceiling that helps maintain internal equity while recognising exceptional value.
Range Spread Best Practices
A common approach is to establish a 30–40% range spread from minimum to maximum, though this varies by:
- Industry norms - tech tends to have wider ranges than manufacturing
- Role seniority - executive bands are typically wider than entry-level
- Market volatility - high-demand skills may require wider bands to accommodate market fluctuations
A Practical Approach to Midpoint Positioning of Salary Benchmarks
Different roles often warrant different market positioning within your overall pay philosophy:
- Junior to mid-level roles typically centre around the 50th percentile to ensure basic competitiveness
- Senior and hard-to-fill roles might target the 60th–75th percentile to attract specialised talent
- Roles critical to business strategy might position higher than support functions
Using a consistent percentage spread around the midpoint can help ensure logical progression between roles.
Common challenges to salary bands and potential solutions
Even the most well-planned salary banding initiatives encounter obstacles. Here are practical solutions to the most common challenges you could encounter when trying to implement salary bands.
Challenge 1: Limited data coverage
The Problem:
Many HR teams struggle to find reliable salary data, particularly for niche roles, emerging positions, or hybrid jobs that combine multiple skill sets.
The Solution:
Blend multiple data sources and use "bracketing" to fill gaps. This involves identifying comparable roles with similar skills, education requirements, (or real-world experience) and responsibilities, then adjust for the specific requirements for the position. For organisations facing persistent data gaps, consider participating in industry-specific salary benchmark data providers to both contribute to and benefit from collective intelligence from a similar company community.
Marketing Industry Salary Benchmarks by BIMA. Powered by Compensation IQ.
Challenge 2: Manual Processing Limitations
The Problem:
Traditional salary banding often relies on labour-intensive spreadsheets prone to human error and quickly becoming outdated. As one of our customers recently told us: " I always worried that my VLOOKUPs were wrong. "
The Solution:
Automated benchmarking tools, can streamline this process and reduce administrative burden by up to 30%. These systems continuously update market data based on their customer integrations and share the insights with all customers signed up.to their platforms.
Challenge 3: So your Company is "Special" - What to do when you have Complex Industry Positioning
The Problem:
For organisations spanning multiple industries or with unique business models, defining appropriate salary benchmark data sources and then salary bands can be very difficult.
The Solution:
Find a salary benchmark provider who focuses on your industry. They may be slightly more expensive than the generalists, but you can then operate with confidence in their data (if they have enough of it).
Implement other filters that add context such as org-size, location etc... and consider a weighted average in your benchmarking approach . For complex roles, create custom benchmarks that reflect your unique business requirements rather than forcing roles into ill-fitting standard categories. You'll need to have a justificatiion for "adjusting" or "amending" the benchmarks (or as a Comp Specialist recently told us: it's called "Fudging").
How this Fin-Tech-Insurance company navigated the salary benchmarking complexities of multiple sectors.
Implementing your salary bands
Creating salary bands is one thing—bringing them to life in your organisation is another challenge entirely. A thoughtful implementation strategy ensures your new framework delivers its intended benefits without creating unnecessary disruption.
Month 1: Preparation and Communication
- Develop clear, jargon-free explanation materials for managers
- Create FAQ documents addressing common employee questions
- Train HR business partners on the new framework
- Schedule briefing sessions with department heads
Month 2: Management Training
- Conduct workshops for all people managers
- Role-play difficult compensation conversations
- Provide talking points for common scenarios
- Establish escalation paths for complex situations
Month 3: Employee Rollout
- Introduce the new framework through company-wide communication
- Offer optional information sessions for interested employees
- Provide individual position information to each employee
- Gather feedback and address concerns proactively
Critical Success Factors to Implementing Salary Bands
✅ Clear leadership sponsorship – Visible executive support signals importance and commitment
✅ Transparent communication – Explain the why, not just the what, behind your new approach
✅ Manager enablement – Equip team leaders with the knowledge and tools to answer questions confidently
✅ Compelling narrative – Frame the initiative as an investment in fairness and employee growth
✅ Regular review process – Establish a cadence for updating bands to maintain market alignment
Making salary bands work harder
The true power of well-designed salary bands emerges when they're integrated with other talent systems. This integration creates a cohesive employee experience where compensation, performance, development, and career growth all reinforce each other.
Integrations with Performance Management Systems
Link pay progression to measurable employee contributions through:
- Clear performance criteria for movement within bands
- Transparent guidelines for exceptional performers who may warrant positioning above the midpoint
- Regular calibration sessions to ensure consistent performance assessment
Connection to Career Development
Align salary growth with skill acquisition and career advancement by:
- Creating skill-based progression criteria within bands
- Developing clear competency frameworks that justify movement between bands
- Offering enhanced learning opportunities for employees approaching band maximums
Supporting Succession Planning
Use your salary bands to:
- Identify future leaders by tracking high-performers progressing quickly through bands
- Prepare successors with appropriate compensation planning
- Create special development assignments that maintain band integrity while testing leadership potential
Enhancing Total Rewards Strategy
Complement your base salary bands with:
- Variable pay programs aligned with band levels
- Benefits differentiation appropriate to career stages
- Recognition programs that reinforce performance expectations
For employees nearing their band maximum, consider shifting reward emphasis to performance bonuses, specialised training, or enhanced benefits rather than continued base salary growth.
Ready to elevate your Compensation Strategy?
Building a structured, data-driven salary banding system doesn't have to be daunting. With the right tools and insights, you can create a transparent, fair and competitive compensation framework tailored to your company's unique needs and culture.
