1. Pay points – a fixed salary amount for a certain job at a certain level. The pay point should reflect your target position (i.e. market percentile) based on the market benchmarks you use and should be adjusted once or twice a year to ensure it remains competitive.
+ Simple to implement and communicate
+ Two people doing the same role are paid the same, preventing pay equity issues
+ Easy to publish and handle expectation-setting at the start of a hiring process
+ Reduced time negotiating offers and debating candidate/employee exceptionalism among stakeholder groups
- No negotiating in a jobs culture that often requires effective negotiating tactics
- No flexibility on base salary, which means high performers (for example) need to be compensated in other ways (if that’s part of your culture)
2. Narrow pay bands – defining a small range for the salaries of each role at each level. Typically it's a 5% range between the band minimum and the band maximum.
+ Balances equity with some flexibility to reward things like performance
+ Reduces the risk of internal pay disparity
+ Easier to scale as the company grows compared to fixed points
- Somewhat restrictive, limiting rewards for top performers or incoming candidates
- Requires regular calibration to ensure bands remain competitive with the market
3. Wide pay bands – a broader salary range within each level. Typically, the midpoint of the band will center on the ‘target position’, with a range of 20-30% between the band minimum and maximum.
+ Provides maximum flexibility to reward top talent when hiring or promoting
+ Encourages retention by accommodating growth in employee skills and responsibilities without needing promotions
+ Requires less ‘updating’ as the bands offer enough flexibility to cover moderate market changes
- Requires robust processes to ensure fairness and prevent pay issues
- Heightened risk of pay disparity, which can lead to employee dissatisfaction
- Band overlaps can cause confusion when comparing roles
Further questions to ask when considering the options:
- Does your company value simplicity and consistency over flexibility?
- Does your company’s size and growth stage make narrow bands the right balance between equity and flexibility for your team?
- Does your organization have the processes and resources needed to manage the complexity and potential inconsistencies of wide pay bands?
The bottom line: Choosing the right compensation band model involves aligning your approach with your company’s values, growth stage, and talent strategy.
- By understanding the benefits and trade-offs of each model, you can create a structure that supports your organization’s needs in pursuit of long-term success.
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