Compensation bands are compensation guidelines that create cross-functional compensation clarity per role. Compensation bands are based on department, level, and (optionally) location.
Historically, compensation bands have been incredibly difficult to create. Most companies hire independent compensation consultants to help them build their compensation bands (even if they are using Pave/Option Impact’s data set). Regardless if the company tries to build band themselves or hires a compensation consultant, the process can take months — you have to assign each employee to a level, find a pull relevant compensation data for each department (typically more than one source), triangulate data across quantitive sources (like benchmarking data) and qualitative sources (like feedback from Recruiters & Managers), analyze employees relative to bands, get all the various stakeholders to sign off, and countless other steps.
Compensation bands create a single source of truth for you compensation planning & management teams. This reduces the overhead for leaderships & cross-functional planning teams when hiring for new roles (compensation no longer needs to be approved for new offers so long as it’s “within the band"), and when payroll planning expenses for the year.
They are essential for things like:
- Giving fair band-based raises to reward employees during merit and promo cycles
- Helping employees understand how their compensation reflects their skill and career progression
- Compensating candidates fairly within a band relative to their skills and experience
- Reduce employee attrition by providing clear pay transparency
- Setting accurate headcount budgets for the year