Compensation 101: Building Consistent Salary Ranges and Bands from Scratch

Key Insights

With new pay transparency laws in New York and California, companies with as few as four employees now need to consider their compensation philosophy.
For early-stage companies that might not have HR resources or guidance yet, establishing a compensation philosophy often falls to founders.
Establishing salary ranges can help founders communicate their company’s compensation philosophy and stay compliant with the new pay transparency laws.

New year, new laws. One of the latest: California’s Pay Transparency Law. The new law states that companies with 15 or more employees and at least one employee in California must include pay ranges in all job postings. According to enforcement guidance issued by the California Labor Commission, the pay scale must be included in the job posting if the position may ever be filled in California, either in-person or remotely. New York City and New York State have recently enacted similar legislation. It is crucial for founders of early-stage companies to stay updated on these new regulations and understand their potential impact on their businesses.

To comply with the pay transparency laws, companies need to post salary ranges in “good faith,” i.e., a salary range the company honestly believes and reasonably expects it will pay for the role at the time of posting the job opening.

Deeper insight: Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?

One way to help simplify the compliance process is by standardizing your company’s compensation structure with clear salary ranges and pay grades/bands. While this doesn’t guarantee compliance, it does help streamline the process. But the benefits of this standardization exercise go beyond helping to meet legal requirements. Establishing a consistent compensation structure can also promote pay equity and help foster a culture of fairness and transparency throughout your organization. It is also a prime opportunity for founders to take an active role in shaping the company culture and values.

While some companies may have already established compensation bands, for many ScaleUps, this is a new endeavor. So, how should companies think about creating salary ranges and pay grades/bands if they need to start from scratch?

Here are seven key considerations to help founders or early-stage HR leaders establish consistent and fair salary ranges.

1. Define your compensation philosophy

Your compensation philosophy explains the “why” behind your pay decisions. It provides guidance to your organization on how to make pay decisions. Your philosophy should include how you approach each compensation element (i.e., base salary, bonus, target total cash, equity). You will need to determine what proportion of pay is tied to base salary versus short-term (cash bonus) or long-term incentives (equity). You will also need to specify market targets (i.e., percentiles) for each compensation component.

2. Conduct a job analysis based on internal data to align on job families, roles, and levels

First outline the key responsibilities, qualifications, and day-to-day tasks for each role at your organization. There are several ways to do this:

Leveraging your own general knowledge of the organization
Observing employees in their roles
Conducting surveys
Referencing job descriptions
Interviewing employees

You will then group the roles at your organization into the appropriate job families and levels (e.g., manager, senior manager, director). Once you’ve established these groupings, stack rank the importance of these roles to your organization.

3. Leverage broad-based compensation market data based on job family and level

Market data is key to building pay grades/bands and salary ranges that are competitive. When leveraging market data, you should match your job families and roles to the data based on the overall job description and responsibilities versus relying only on the job title. Sometimes you might have to combine two different roles within the market data to ensure it covers all aspects of your role.

Additionally, it is important to note that many compensation benchmark tools leverage historical salary data and might not reflect current salary trends. Keep this in mind as you build your pay grades/bands and salary ranges.

4. Determine pay grades/bands

Start by grouping positions of similar worth at your company (i.e., they fulfill similar expectations and have similar levels of responsibility). Entry-level positions often act as the starting point of a pay grade/band because they have less training and experience.

Early stage companies might only have 3-4 pay grades/bands, whereas later-stage companies might have upwards of 10. It is important to note that there is no limit to the number of pay grades within an organization.

pay scale skills analysis

salary ranges and pay grades

This is an illustrative example. Sources: University of Florida – HR, Case Western University – HR

5. Build your salary ranges

Now you can begin building your salary ranges. These ranges should include a minimum, midpoint, and maximum dollar (or other currency) value for each role and level. It is common for salary ranges to overlap to enable career progression in a cost-effective way.

6. Educate your managers

You want to ensure your managers understand your company’s pay philosophy so they can more easily explain to candidates and current employees how the organization makes its compensation decisions. This should include how compensation levels are determined, how the bonus plan works, and the ability to speak to equity.

7. Regularly reassess your salary ranges

Building salary ranges isn’t a one-and-done exercise. You will need to reassess your compensation philosophy and adjust as needed. These adjustments will be based on both internal (i.e., cash reserves) and external factors (i.e., market conditions).

Hiring managers should also review the established ranges prior to including them in any job postings. This will help ensure they accurately reflect what the company honestly believes and reasonably expects it will pay based on the specific considerations of the role and fine-tune if necessary. To the extent a posted salary range deviates from a role’s salary band, you should document why.

While salary banding may seem like a daunting task, getting this exercise right will help ready you for the new pay transparency laws coming online. While this work doesn’t replace the compliance process, it is complementary and will help streamline the process. Beyond compliance, a consistent pay policy will help you attract, retain and motivate employees, and build a healthy culture and organization long-term.

Want to discuss further? Onsite’s HR experts can help. Contact us: HRonCall@insightpartners.com

Please note that this guidance is not legal advice. We suggest consulting with an employment lawyer if you have any questions about complying with pay transparency or pay equity laws.

Move Over Quiet Quitting: These are the 2023 Trends to Watch for Talent Acquisition and Human Capital

2022 was another wild year. From the “Great Resignation” to inflation, talent acquisition and human capital professionals were left navigating a workforce that was consistently in flux. Looking to the year ahead, anticipate continued ambiguity and more change management given the evolving nature of the workplace, as well as the current economic climate.

So, what does this mean for the people and talent acquisition space? Here are the top trends to watch in 2023.

Hiring will be less about speed and more about rigor.

Companies will prioritize hiring a few specific roles versus growing at any cost. Recent Insight Partners’ data shows that leadership hiring is down 36% over the last year. The volume of executive hiring hasn’t been this low since Q4 of 2020. This indicates that companies are being more thoughtful in their approach to hiring and we expect this consideration to continue throughout 2023 – at the executive level and beyond.

There will be a greater focus on pay parity.

Over the past year, we saw compensation packages skyrocket. According to Hired, in 2022, the average tech salaries for roles at mid-market-sized companies (300-1K employees) increased significantly in the US (~$164K) and the UK (~£85.3K). The same report indicated that “average local salaries for candidates in mid-sized markets (medium-tier cities like Boston, LA, and Seattle) caught up to larger tech hubs.” This increase in salaries has caused greater pay discrepancies between new hires and more tenured employees. With new pay transparency laws coming online, there will be a greater focus on pay parity. Companies will need to reexamine their compensation philosophies and ensure alignment on compensation bands and leveling.

Deeper insight: Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?

How we define and measure productivity will evolve.

This past year we heard a lot about “quiet quitting” and employees feeling less engaged in their work. As a result, leaders have been evaluating how to manage productivity without micro-managing or using “big brother” types of tactics (i.e., pulling data on Teams or Slack usage). In the next year, we will continue to discuss not only how we manage productivity but how we define it. Productivity will be less a measure of time spent in a seat and more based on a mix of creating value, outputs, and relationship building.

Manager upskilling will be a must.

This was a wild year for the workforce. Some companies went from hiring surges to reductions in force, leaving employees to take on more with less. Remote and hybrid work isn’t going anywhere, which has left many leaders to ponder how to build culture and connectivity without in-person face time. To help employees navigate through all this change and combat continued fatigue and burnout, managers will need to elevate their skillset. They won’t be able to apply the same in-person tactics they did before.

Recent Insight Partners’ data shows that leadership hiring is down 36% over the last year. The volume of executive hiring hasn’t been this low since Q4 of 2020.

Stability will sell.

Given the market, candidates and employees are more risk-averse than earlier in 2022. People will be wearier of changing jobs or working for less-established organizations. It will be harder to woo candidates solely based on culture, swag, and fun. Instead, companies – and specifically, recruiters – will need to be able to clearly articulate what the business is and how it is positioned to win in the market. Additionally, companies will need to focus on the stability of the role, salary, and benefits – anything that feels concrete and tangible to help employees weather the uncertainty of the current climate.

The era of the Chief People Officer will continue.

Gone are the days when “human resources” could act as an administrative function. Heads of People are now expected to take a more strategic, forward-looking lens, especially as we evolve our workplace cultures and manage through continued ambiguity. This will require greater rigor and focus on getting processes and structures right, so companies are prepared for when hiring – and the market – picks up speed again. Human capital leaders will be expected to have an innovative mindset and develop true cross-functional, executive partnerships to meet the increased demands of the role and help elevate all business functions at the organization.

If the past several years have taught us anything, it’s that companies and leaders need to be agile. While we can’t predict everything the future holds, we foresee that 2023 will be the year of focus, flexibility, and foundations. Leaders will need to take a more thoughtful, strategic approach to talent acquisition and human capital overall to attract and retain top candidates, as well as ready organizations for scale long term.

Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?

Pay transparency. It’s a topic on many HR leaders’ minds. With a renewed focus on inequality in pay, many local and state governments are putting laws into place with the intent of positively impacting pay equity for underrepresented groups.

Key Insights

With NYC, California, and other jurisdictions passing pay transparency laws, it’s important for HR leaders to be prepared for how to stay compliant in their organizations.
Start by looking at your internal salary data by job level, function, and geography to identify the median or average salaries.
Avoid publishing salary ranges that are too broad.
Be ready to document and explain the reasoning behind the salary ranges and philosophy to create a truly equitable pay culture at your organization.

Most recently, New York City enacted a pay transparency law requiring employers to state the minimum and maximum salary within job advertisements. The law applies to any company that has at least four employees, one of which is based in NYC. It also impacts any jobs that could be performed in whole or in part in NYC – in other words, postings for remote roles are not exempt.

NYC isn’t the first nor the last jurisdiction to pass such a law. California is close behind, launching a state-wide law effective January 1st, and we anticipate more local and state governments following suit through the next year.

As this trend in pay transparency continues to grow, employers need to rethink how they approach their pay ranges to not only meet the demands of these new laws but also to ensure consistency and equity across their organizations.

So how can organizations create salary ranges in “good faith”?

Leverage data. It’s important first to analyze your internal data. Look at salaries by job level, function, and geography to identify the median or average salaries. You should also leverage external benchmarks through a compensation benchmarking tool. Again, you can examine market data by job level, function, and geography to see how your current range compares to the broader market. As one way to potentially calculate a range in good faith, you can calculate a percent below and above those averages or medians based on geography, experience or education, scope, etc. It’s important to note that you should also proactively identify any employees that may be below your identified range. Once these ranges are shared publicly, you can anticipate employees asking why they fall below or on the lower end of said range.
Try not to make your range too broad. As a workaround, some companies originally tried to state excessively large ranges such as $100,000 to $300,000. However, some local agencies – like the Colorado Department of Labor – are fining a few businesses and issuing hundreds of warnings to businesses with too broad of ranges. Broad ranges also can indicate to a candidate that you lack a transparent culture, which can detract from the overall quality of your applicant pool. If you do have a broader range, you need to ensure you have a good faith reason to do so, such as the role is remote and the salary will be based on a candidate’s geography (e.g., on the higher end of the range if based in NYC) or that the role can be done with varying levels of work experience. Additionally, if an employer has no flexibility in the salary being offered for one particular role, it is ok to make your range smaller.
Document, document, document. To truly build a range in “good faith” you will have to put some forethought into those ranges. If you are able to document and explain why you’ve created a range, it will help you mitigate risk. It also helps ensure that you are truly building a more equitable pay culture at your organization and makes it easier to explain to employees your pay philosophy.

Pay transparency is here to stay. If you have employees in multiple states, it’s better to prepare at large for these laws versus trying to manage multiple processes as more laws come online.

At the end of the day, these laws are meant to close the racial and gender wage gaps and generally remove the stigma around talking about salaries. Preparing now not only ensures you stay compliant but also builds a culture of transparency and equity in your organization.

For What It’s Worth: The Importance of Explaining the Value of Employee Equity

Employee equity is a popular incentive for ScaleUps, and for good reason. It helps companies take pressure off cash compensation, creates a culture of ownership and accountability, and often acts as a strong retention tool for employees.

In the U.S., while many employees understand the basic principles of equity, they often struggle to understand the potential worth of their options. In Europe, education around equity generally lags behind its U.S. counterparts (although we are seeing a shift here too). Regardless of geographic location, many ScaleUps struggle to effectively articulate what employee options can be worth someday – either overpromising or under-explaining. So, how can leaders better demonstrate the potential value of employee equity?

Explain how the price of employee stock option grants is determined

Options are first granted at a strike price (the price you will pay to exchange the option for a share of stock). The strike price is determined by the fair market value (FMV) of the share at the time the option grant was approved.

In the U.S., the FMV is determined by a 409A valuation specialist. Companies typically reassess their 409A valuation after equity financings and then at a regular cadence after that. In other countries, such as Germany, the strike price is based on the latest fundraising valuation. In other EU countries, you can offer grants at a reduced strike price (with country-specific restrictions) without any tax penalties. You do this by obtaining an FMV that is recognized by tax authorities. While tax-assured valuations might not be available everywhere, it is important to seek legal counsel to see what flexibility is possible. Even in countries where valuations may not be tax-assured, there are still precedents for offering reduced strike prices.

Estimate the potential value of employee options today

You can estimate this value by using the number of options in your equity grant, your strike price, and the most recent FMV / price per share. The potential value of these options will change as the company’s valuation changes – ideally increasing in value substantially.

Illustrate the value of employee options at a range of valuations

Instead of making broad claims (i.e., “we’re the next unicorn”), show what the value of options could be across a range of valuations. Early-stage companies, for example, are generally valued as a “multiple” of their revenue or ARR.

Employee equity is complicated. Taking the time to educate your employees around the value and other basic mechanics (e.g., vesting, exercising), is a must to truly make them feel like owners and ensure you aren’t overselling what their options can be worth one day. The worst-case scenario is promising a specific amount of dollars, which may or may not come to fruition. Instead, by clearly articulating how stock options work, you empower your employees and align them to your organization’s long-term success.

6 Steps to Getting Sales Rep Hiring Right

Sales reps are the most expensive GTM resources and the backbone of growth, yet all too often sales and HR leaders overlook the process behind successful hiring. Leaders are often vague about what sort of background they want to hire for. Or they thoughtfully spell out what they’re seeking but don’t stick to it in practice. Worse, after only a fraction work out, they fail to learn from it and the turnover treadmill continues — reducing sales efficiency and team morale. So building a process to hire great AEs is a worthy investment of time that will pay dividends for years. This article lays out a 6-step process to maximize your chances of hiring great reps that have the background, skills, and knowledge to be successful — and move the needle for your business.

Step 1: Define responsibilities

Start with the seller’s day-to-day responsibilities and what success looks like. What are they responsible for across new logos, expansion, renewals, and adoption? Are they selling into mid-market, enterprise, or large global accounts? Is it a highly consultative sale with a dozen stakeholders, or is it a transactional process for a small company? Is the product complex, requiring them to answer technical questions or conduct bespoke demos, or is it straightforward? What industries will they sell into? Beyond their responsibilities, what does success look like? For example, she self-sources one-quarter of her pipeline, closes deals in 4 months on average, and ends the year with a mix of mostly small and medium-sized deals alongside one or two large ones.

Step 2: Analyze today’s team

Next, examine the attributes of today’s high and low-performing reps. What do your top sellers have in common? What do they do well? Which skills and knowledge did they have when they were hired, and which did they instead learn on the job? For those who didn’t work out, why were they unsuccessful? Recognize those patterns and document them. Depending on the size of your team, over-index on the more recent hires that more closely represent the next 10 reps you’ll bring on board.

Step 3: Identify rep competencies

Organize your rep competencies into four buckets (the following is not comprehensive):

Industry & Product, such as previous experience in your industry and the end customer’s industry, how those end customers make more revenue or lower costs, pain points, and product knowledge
Selling Skills, such as prospecting, qualification, objection handling, discovery, use case articulation, negotiation, deal strategy, building a business case, time management, trust-building, and internal collaboration with SDRs and SEs
Abilities, or the soft skills applicable beyond just sales, including executive presence, grit, extraversion, curiosity, attention to detail, polish, confidence, and coachability
Background and previous roles, such as selling into the enterprise or to a particular buyer; new logo rep, or an account manager; specific companies they worked for; startup or mature company experience; and years of experience

Step 4: Prioritize the critical attributes

Step 3 likely led to a laundry list of attributes, so stack-rank them and identify the top 7-10 things that are most likely to lead to success on your team. Include in that exercise other functions like customer success, marketing, sales engineering, sales development, and product to ensure all voices are heard.

Step 5: Create a scorecard

You’ve articulated what makes for the ideal rep, but many skills are on a spectrum. Spell out what each attribute actually looks like on a scale from 1 to 5, including concrete examples from real scenarios your team has encountered. For example, for a 5 on product knowledge, it could be a quote from a real demo an SE ran with a prospect. For a 2 on social selling, it could be the minimum elements of a LinkedIn profile. This ensures everyone is on the same page when interviewing and selecting candidates, from the veteran sales manager in Enterprise West to your recently hired Mid-Market lead. It’s important to note that excellent reps don’t enter the company knowing it all. There is a ramp-up period. So consider breaking out (a) the minimum starting point needed before being hired and (b) what level they must be at once trained and fully ramped. For instance, perhaps a 1 out of 5 on industry expertise is acceptable — they can learn that on the job — but they need a 4 out of 5 in negotiation because that is too hard to train.

Step 6: Establish structured interviewing

Lastly, how do teams test for these skills and knowledge and evaluate candidates consistently? Work with your HR organization to devise structured interviews — interview questions, case studies, role plays, and more — that test each competency and allow you to calibrate a 1 vs. a 3 vs. a 5. More on hiring best practices here.

Conclusion

With this 6-step process, you and your entire company will know precisely what sort of rep you’re hiring for, with all the specific attributes prioritized and calibrated. As your teams speak with candidates across the globe, they will take a consistent approach, ferreting out the bad and selecting the good – whether those interviews are in Louisiana or Luxembourg. As a result, rep performance will improve, turnover will decline, and CAC will get more efficient. You’ll also create a winning sales culture that maintains high standards so that your team of 10 is as high-caliber as your team of 100.