How to create your first salary bands
From the article series on running Raft, a small Amsterdam based design consultancy.
As you begin to hire talent into your company, the discussion of salary will obviously and inevitably come up. While many people may be fine with leaving salary as one-off discussions with newly hired individuals, I would encourage small companies to put develop salary bands based off job titles / levels you have set. For clarity, a salary “band” (a.k.a. range) is produced as a top and bottom level of salaries for a given job title or job level. This allows team members and companies to equalise their employee pay and ensure fair pay for all talent. Even if you haven’t set job titles, a discussion of salary bands based on years of experience, or another framework, may be helpful for company leaders to align on the overall competitiveness of their company.
Why create bands?
Aside from good company hygiene, here are a few of the benefits having concrete salary bands can provide.
- Bands assist in setting specific norms for the company. This way two senior designers won’t (or shouldn’t) have a €30,000 delta in their salary due to negotiation or the time they entered the company.
- As the company scales, it allows company management to have a baseline to leverage when making hiring decisions in different teams.
- Bands can play down bias across all parties. It allows a company to provide a top, bottom, and middle scale for everyone to be rated against. This means that it should assist and aim to downplay unconscious bias between men, women, or minorities.
- Bands should allow for greater flexibility (aka broader range between the top and bottom) in pay at higher levels. This is due to often longer tenures in a specific role as talent become more senior. As individuals move up within your company, each level will probably take longer to make a leap to the next. Therefore a person may spend 2–3 years as a Designer, 3–4 years as a Senior Designer, and perhaps 3–5+ years as a Lead or Director — these could even be levels that talent simply stays at for their career if they are happy and productive. Therefore the higher the level, the higher the spread to provide good raises each year for employees so they feel continually valued and enjoy employment.
How to start creating your bands
When you do create bands, start by doing research. Even something as simple as looking at GlassDoor or other job postings which list salaries may help. What may be more productive is trying to find any insider knowedgle from your network from people who work at competing or lateral companies. Once you have a little more working knowledge you can then start to synthesise your research and determine your own salary bands for discussion with other company leaders.
While I don’t prescribe any set path in the creation of bands, there are a couple areas to think about when setting up bands to make them most effective.
- Bands should slightly overlap each other. This will allow more room for inter-band negotiation and allow for adjustment based on individual seniority within a single band.
- Overlap in bands also allows for people to stay in band for longer while receiving consistent raises each year. You want to give your salary bands a broad range as some employees will reach a level, often senior, and be happy to stay at that level. While some people may be focused on growth and career, others may be focused on other parts of life. Develop a company, and thus salary bands, that can accommodate for both.
- If you’re an agency (consulting), you generally can’t compete with corporate companies on salary. Especially larger software companies. This is because agencies costs scale with revenue. Each new employee that is brought on will make a certain amount, but that amount is never exponential. It’s additive. By contrast, corporate companies, especially software, can create products that can scale with near zero marginal cost, and can drive near exponential revenue per employee. This means they will be able to pay more. As a partial result, as corporates drive up salaries, if you’re in a consulting business, you will need to adjust your salaries every few years to try and stay competitive. However remember you will most likely not be able to specifically on salary, and therefore think about how you compete on career, growth, opportunity, program variety, company culture, and other perks.
It’s about total compensation — not only salary
Always remember to think in terms of Total Compensation and not simply salary. Young companies can often miss this, and compete solely on salary, which may put them as a disadvantage of pulling in great talent. Total compensation is the complete package you offer an employee — salary, culture, perks, bonus, etc.
As an example, our total compensation at Raft looked like the following
- Baseline salary
- 30 days of holiday with an additional ~2 weeks of holiday over winter holidays when we close the studio — This translates to roughly 2 months of vacation per calendar year.
- Training opportunities — we bring trainers to the office to focus on different skills
- Learning budget — All employees get a set amount of money they can use for training of their choice.
- Potential for bonus
- Basic food for lunches provided — although I’m sure everyone now is tired of toasties!
We could also look at including other perks such as rain gear (hey, it’s Amsterdam!), bicycles, museum tickets, gym membership, etc. Although these were not specifically part of our previous offering.
Once you set you salary bands, they should be evaluated roughly once a year to ensure there is no accidental discrepancies in pay and staying competitive within the market. If discrepancies are found outside of that cycle, I recommend individuals and companies to address it right away and not wait for the annual review cycle. Always do right by your employees, even if it’s a little inconvenient from time to time.
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