Salary range or salary band is the amount of money an employer expects to pay for a specific job. It usually outlines the minimum and a maximum pay for a specific role, based on their function, their level and (optionally) their location. For example, a marketing manager's salary range could be $130,000 to $150,000 per year.

Factors to Consider When Building Salary Ranges

There are two sets of factors to consider when building salary ranges: details about the role, and information about your company. 

Information about the Job: 

Location: The cost of living and the demand for talent vary by geographic area. For example, a software engineer in New York City or San Francisco will likely earn more than one in Jacksonville, Florida.

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Level: The skill level and experience required for a position can influence the salary range. For example, a senior developer with 10 years of experience will likely earn more than a junior developer with 2 years of experience.

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Department: What type of work you do influences the salary range. For instance, most companies would pay an accounting manager differently than a product design manager, even if they were at the same level in the same location.

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Related:

Guide: How to Choose the Right Location-Based Compensation Strategy
On-Demand Webinar: How to Choose the Right Location-Based Compensation Strategy

Information about your Company:

Industry: Different industries have different pay scales and norms. For example, software and technology companies tend to pay more than retail or hospitality businesses.

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Compensation philosophy: Organizations approach pay differently, depending on their culture, goals, and strategy. This is often referred to as their “compensation philosophy”. For example, some companies may pay above market rates to attract and retain top talent, while others may pay below market rates but offer other benefits like stock options or flexible work arrangements. 

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If you don’t have a compensation philosophy or strategy yet, it’s one of the most helpful artifacts you can create to help you organize your approach to compensation before building salary ranges and communicating compensation to your employees. 

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Related: 

Guide: How to Launch Your Compensation Strategy

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It’s critical to understand your organization's compensation philosophy and the industry you compete for talent with, as well as catalog your current (and future) teammates location, level and department. Having a strong grasp on these elements will help you contextualize and make more informed salary range decisions.

Conducting a Salary Benchmarking Review

Conducting a salary benchmark is an early and critical step when building salary ranges. 

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Salary benchmarking is the process of finding points of reference against which you can use to compare and assess your organization's salary ranges with those of your competitors or industry peers. 

Salary benchmarks help you determine how much you want to pay based on how competitive you want to be for talent. 

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To conduct a salary benchmarking exercise, you need to:

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Define your departments and levels: As mentioned above, a salary band is largely based on a job’s level and department. The first step of salary benchmarking is identifying the departments and levels your need to find salary data for. Note that you can also use title instead of departments and levels, but sometimes that can be misleading; a marketing manager at one company can have very different responsibilities than a marketing manager at another company. 

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Collect salary data: You need to gather reliable and relevant salary data from various sources:

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- Pave’s free benchmarking tool provides salary information based on job title, location, and more. You can access Pave’s salary benchmarking tool here. 

- Asking your recruiting and talent team what candidates are saying their salary is.

- Networking with other contacts in your industry or area who can share their salary ranges or insights.

It’s common to “triangulate” salary benchmarks to build a more holistic understanding of the market rate for certain roles, especially for jobs you may be less familiar with.

Building your Salary Bands

Salary Benchmarks are incredibly valuable to help you guide how to price candidate offers and guide negotiations and ensure pay fairness and transparency; plus, setting (and sharing) salary bands will let you scale more effectively. 

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To set your salary ranges:

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Build your salary ranges: Use the salary benchmarking data you collected per job family, level and location to set the band midpoint, min and max. Most organizations use the salary benchmark as a midpoint and add and subtract a value – often a percentage between 5-20% – from the midpoint to create minimum and maximum values. 

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Related:

Guide: A Practical Guide to Building Compensation Bands in 6 Steps

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Analyze the data: You should compare your current team’s salaries to the new salary ranges. You need to look for any differences or trends that may indicate that your pay is too high or too low. You may need to increase or decrease your minimum or maximum values, or create new ranges for new positions. 

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If you are consistently finding that a group of employees are paid lower than their ranges, you can include “market-based compensation changes” to bring people to the minimum of their band. Bands are a great tool to ensure that you are paying fairly and equitably across group. 

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Review and update your salary ranges: Salary benchmarking is not a one-time activity. You need to monitor the market changes and update your salary ranges periodically to stay competitive and fair.

Conclusion

Salary ranges are an important element of compensation management. It helps you attract and retain talent, ensure fairness and equity, and control labor costs. To determine the salary range for any position, you need to conduct salary benchmarking and use salary bands. By following the steps and tips in this article, you can create a competitive and transparent pay structure for your organization.