How to create salary bands (step by step, with a template)

How to create salary bands, in short: define the levels first, decide the market you are paying against, build a range around a midpoint for each level, and only then place the people you already employ. The design work takes a few weeks and it is the easy half. What decides whether the bands hold is what you do about the people the exercise finds sitting outside their range.

Every company reaches a point where salaries can no longer be explained. Each one was defensible when it was set — a strong candidate, a counter-offer, a promotion that could not wait — and together they no longer form a system anybody could describe out loud. Creating salary bands is how that gets repaired.

How to create salary bands, step by step

1. Agree the level structure. A band is the pay range for a level, so until levels exist there is nothing for a range to be a range of.
2. Decide which market you pay against and where in it you want to sit — before anyone opens a benchmark report.
3. Gather whatever pay evidence you can defend, and write down honestly where it is thin.
4. Set a midpoint per level, build the range around it, then check the distance between midpoints.
5. Place every employee on a level using the definitions alone, with salary hidden.
6. Overlay pay, list the people above and below range, and decide what happens to each group before anything is communicated.

Start with levels, not with numbers

Bands attach to levels. Without a level structure you end up with per-title bands that multiply every time someone invents a title, which is a filing system rather than a pay structure.

If levels do not exist yet, that is the first project, and it is a different one — see career frameworks for scale-ups. Three or four levels per track is enough to start.

Decide the positioning before you look at data

Market positioning is a commercial decision, and making it before opening a benchmark report stops the data from making it for you.

The decision has three parts: which market you are comparing against (your country, your sector, your funding stage, or the companies you actually lose people to — these are rarely the same set), which percentile you target, and whether that varies by function. Paying at the median for most roles and above it for two or three genuinely scarce ones is a legitimate and common answer, as long as it is written down.

Construct the ranges

A salary band template

The table below is an illustrative example, not a benchmark. The figures are gross annual salaries in euros, of an order that is plausible for a professional role in Portugal, and they are here to show the shape of a pay bands template rather than to be copied: midpoints that step clearly apart, ranges that widen with seniority, and a deliberate overlap between adjacent levels. Replace every number with your own before the template does any work.

Read it as three decisions rather than fifteen numbers. The midpoint is where a fully competent person at that level should sit. The distance between two midpoints is what a promotion is worth, and it has to be big enough that people can feel it. The width of a range is how long someone can grow inside a level before promotion becomes the only move available to them.

How to create pay bands without market data

Most companies of this size start without usable benchmarks, and that is not a reason to wait. Salary band development works from the inside out: build the relative structure first, then calibrate it against whatever outside evidence you can actually get.

• Anchor on your own recent hiring. The offers you made, and the offers candidates turned down, are the sharpest market evidence you own.
• Read published ranges. Advertised pay is becoming routine, including at the companies you compete with for the same people.
• Prefer sector and employer association surveys over global reports calibrated on markets you do not hire in.
• Set the ratios before the absolute numbers. Decide what a senior level is worth relative to an entry level, then move the whole structure as better evidence arrives.

Record how confident you are in each level. A band set on two data points is a band you should revisit within the year, and saying so protects the framework from being treated as more precise than it is.

Place people on level before you look at their pay

This sequence matters more than it sounds. Placing people while their current salary is visible produces levels that quietly justify the pay, which is the problem you started with, now formalised.

1. Place everyone on a level using the level definitions alone, with salary hidden.
2. Have a second person review the placements independently. Disagreements are information about the definitions, not just about the people.
3. Only then overlay pay, and produce the list of people above and below their range.
4. Decide the approach for each group before communicating anything.

The outliers are the real decision

Two groups will fall outside, and how you handle them is what the company will remember about the whole exercise.

Below range. These need a correction and a date. A framework that identifies underpaid people and does nothing is worse than no framework, because it converts a private inequity into a documented one. If the full correction is not affordable at once, a staged plan with committed dates is defensible. Silence is not.

Above range. Almost always held rather than reduced: cutting pay to fit a new model damages trust far beyond the individual. The usual approach is to hold the salary, apply smaller or no increases until the range catches up, and say so plainly to the person. What breaks this is not the decision but the surprise.

A pay framework is judged by what it does for the people it finds are underpaid. Everything else is administration.

The rules that keep it alive

Bands decay through exceptions, not through design flaws. Three rules prevent most of it:

• One named approver for any offer outside a range, and the reason recorded in writing.
• A review of ranges on a fixed annual cadence, so they move deliberately rather than through hiring pressure.
• A quarterly look at pay dispersion within each level. Widening dispersion is the earliest signal that the framework is being worked around.

Salary bands and pay transparency: what changes

Pay ranges are moving from private to disclosable, and the direction of travel is one way. The practical effect is that a company has to be able to explain its ranges to a candidate and to an employee who asks, which is a very different test from having a spreadsheet that balances.

That makes two things load-bearing: the criteria that put a person on a level, and the reason any individual sits where they sit inside the range. The detail is in pay transparency; the short version is that the framework now has to survive being read by the people it applies to.

What to publish

Levels and promotion criteria should be visible to everyone: they exist to answer a question people currently cannot get answered. Whether to publish the ranges themselves is a separate decision, and both answers are defensible.

The thing that is not defensible is publishing before managers can explain the framework in their own words. The most common failure of a pay project is not the model — it is announcing transparency and leaving managers to field questions nobody briefed them on.

This is the work covered by Careers & Compensation, and it is materially cheaper done as one project than as two a year apart.