Understanding Salary Bands, Job Grades & What HRs Should Know

Many of us have heard about salary bands, but not all of us understand the intricacy of compensation strategy. HR managers need to know job levels, salary ranges, and other pertinent information. 

There are several compensation structure examples and depending on the needs of each organization, there can be different methods used when developing a competitive and fair compensation structure.

Job grades and salary bands are vital elements of the compensation strategy for the uninitiated. Let us understand the difference between these two elements and their role in compensation strategy. Knowing and understanding salary bands and job grades shall help companies find out how their employees should get paid.

Knowing the different job grades helps in having clarity in salary expectations. It helps answer the following questions:

Questions HRs Must Ask About Job Grades

·       How should I go about workforce planning? First, the company needs to ensure that its employees have the right mix of skills and responsibilities to meet overall goals.

·       When an employee needs to be promoted? The company needs to check if specific employees exceed expectations for a higher job grade. If they are, they need to be promoted.

Job grades a pivotal role when creating good hiring plans. The decision needs to be taken about skills expected in new hires and how they can contribute to the team. Thus, HR managers need to decide salary bands and job grades targeted for new recruits.

Salary Bands

Having detailed information on salary bands helps in impactful communication and planning. Let us see how salary bands help in the following tasks-

·       Clarity on salary bands makes it easy to create consistent candidate offers.

·       Communicating pay ranges to prospective candidates becomes easier.

·       Salary bands help calculate compensation metrics like range penetration and Compa Ratio. It helps in understanding appropriate adjustments and measuring pay equity.

·       Understanding salary bands also helps in making budgets for hiring employees.

Decoding Job Grades

Also referred to as “job classification” or “job level,” a job grade is dependent on the company. Irrespective of the name chosen, the concept of job grades stays the same. It helps decide the seniority, impact, and expectations for a particular role.  The job grade an employee gets reflects their skills, knowledge, and responsibility.

Are Job Grade and Job Title the same?

Many people get confused by job title and job grade and consider them the same. It is mostly true, but not always. For example, in some government and private jobs, the job titles mainly explain seniority levels. However, it is most common in companies where job levels are open, and every employee knows about another employee’s job level.

Thus, there is no point finding a deeper meaning in job grades. Some titles do not reflect job grades. There can also be an external or internal title. The purpose of titles is to foster credibility.

On the other hand, salary bands help define the pay targeted for employees falling within specific job grades.  A company needs to decide for every level and firm up high-end, low-end level pays an employee would command. Therefore, creating a salary band is important in retaining employees, making offers, and planning future growth.

Use of Multi-data Sources

There is no dearth of market data sources that help in defining employee salaries, salary bands and job grades. Smart and fast-growing companies set their salary bands using multiple sources. Some of these sources are-

·           Self-reported sources

·           Salary Survey Data companies

·           Company recruiters

Using multiple-data sources help in creating tailor-made salary bands that are in perfect sync with company focus and goals. A company needs to be more flexible, which reflects when there is an overlap between salary bands. For example, merit raises are given to the employees without promotions.

Managers can also use the option of promoting mid-cycle without financial plans going haywire. This way, employees have full bandwidth to continue growing in their current positions without a focused approach on promotions.

How should hiring be done?

Flexibility is the major benefit of creating a suitable compensation strategy. It is not necessary to carry out hirings at the salary band bottom. Experts in the field do not recommend it. It turns out to be a dead-bottom scenario. When there is an overlap between salary bands and the bands are fairly wide, the target range for new hires is often narrower than ever.

Is Aggressive Hiring the answer?

Some candidates often negotiate aggressively, which breaks out of the top salary targets for the new hires. When hiring focuses on target salaries at a band narrower than salary bands, it again imparts flexibility. There is always a bandwidth with the company to decide if the new candidate is being offered the right role and how high a company can go. 

At the same time, hiring a candidate directly at the top salary band can put the company in a bad position. Thus, it is important to balance promotion and hiring an employee at a top salary.

A Closer Look at the Existing Employees

When making these decisions, the companies also need to keep their existing employees in focus. Once salary bands and job grades are decided, the HR managers need to look at how these candidates can measure up. It is important to weigh up all these factors and make the best decision. 

HR managers need to make these decisions and focus on manager distributions and range penetrations when taking the company decision. Some outliers are also expected to check out the compensation of the employees. Therefore, it is important to focus on all these issues by the HR Managers of companies and strike a fine balance for the best decision.

It sounds more complicated than it is. There is no dearth of companies that help HR Managers to make the right decision. Such decisions go a long way in hiring candidates at the right job levels and salary bands.

In a Nutshell 

It is also important for HR Managers to revisit the salary bands every couple of years. Circumstances change, and factors need to be reconsidered to walk with the times. Revisiting salary bands and job levels will help stay in sync with the modern market trends. It will help the company to remain relevant.

Springworks Team

Building products and tools to simplify the life of an org's HR function in terms of recruiting, onboarding & retention!

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