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How do you handle salary band compression or overlap issues?

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A salary band is a range of pay that an employer offers to a specific job level or position within an organization. A salary band usually has a minimum, midpoint, and maximum salary, and may also have different sub-bands within it. Salary bands are often used as part of a compensation structure that aims to align pay with performance, market competitiveness, and internal equity. But what happens when salary bands become compressed or overlapped, and how can you handle these issues effectively? In this article, we will explain the causes and consequences of salary band compression and overlap, and share some tips on how to avoid or resolve them.

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1 What is salary band compression?

Salary band compression occurs when the difference between the minimum and maximum salaries within a band, or between adjacent bands, becomes too small. This can be caused by inflation, market changes, pay freezes, promotions, or tenure. Salary band compression can lead to a variety of issues such as reduced motivation and performance of employees who feel underpaid or undervalued, increased turnover and difficulty in attracting and retaining talented individuals, as well as increased risk of pay discrimination or legal claims if employees feel their pay is unjust or inconsistent with their qualifications or contributions.

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Clifford Watkin

Founder & Chief People Officer at Circle Strategies, Inc.
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As an HR professional, you may face issues of salary band compression or overlap. These issues arise when the pay range for certain positions overlap or when there is a narrow pay range for different job levels. To handle this, HR professionals need to review the salary structure regularly, adjust pay ranges to match market trends and ensure that employees' salaries are commensurate with their experience and performance. Additionally, implementing a job evaluation process and ensuring pay equity will help avoid compression or overlap issues. By proactively addressing these issues, HR professionals can maintain a fair and equitable compensation structure that attracts and retains top talent.

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André do Carmo

Director at RH Senior |??Compensation & Benefits | ??Organizational Structure Design | ??Reward Systems | ??Performance Management | ??Salary Survey | ??Job Analysis & Evaluation
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A compress?o salarial pode, de fato, levar a vários problemas organizacionais, como mencionado: desde a desmotiva??o e a queda de desempenho até a dificuldade em atrair e reter talentos. Além disso, o risco de discrimina??o salarial e de a??es judiciais é uma preocupa??o relevante, especialmente se os funcionários perceberem que seus salários n?o correspondem às suas qualifica??es ou ao valor que agregam à empresa. No entanto, abordar essas quest?es de maneira proativa, através da revis?o de políticas salariais, da implementa??o de sistemas de avalia??o justos e transparentes, e do estabelecimento de canais de comunica??o eficazes, pode ajudar a mitigar os efeitos negativos da compress?o salarial.

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2 What is salary band overlap?

Salary band overlap occurs when the minimum or maximum salaries of one band intersect with those of another band, such as when the maximum salary of band A is $80,000 and the minimum salary of band B is $75,000. This can be caused by market adjustments, merit increases, or bonuses. Unfortunately, this can lead to reduced career progression and development opportunities for employees, confusion and dissatisfaction among employees who do not understand their pay or band placement, and complexity and inconsistency in managing pay decisions and policies.

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André do Carmo

Director at RH Senior |??Compensation & Benefits | ??Organizational Structure Design | ??Reward Systems | ??Performance Management | ??Salary Survey | ??Job Analysis & Evaluation
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Segue uma experiência que tive como consultor sobre esse tópico: Para resolver essa quest?o, realizamos uma revis?o abrangente das faixas salariais, considerando benchmarks de mercado, a estrutura interna da empresa e os planos de carreira dos funcionários. Ajustamos as faixas salariais para garantir uma distin??o clara e justa entre os diferentes níveis, introduzindo também critérios transparentes para promo??es e aumentos salariais baseados em mérito. Como resultado, a empresa conseguiu n?o apenas clarificar as expectativas e oportunidades de carreira para os funcionários, mas também estabeleceu um sistema de remunera??o mais justo e competitivo.

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3 How to avoid salary band compression and overlap?

To avoid salary band compression and overlap, organizations should design and maintain a robust and flexible compensation structure that reflects their goals, values, and culture. This can be achieved by conducting regular market research and benchmarking to ensure that salary bands are competitive and aligned with the external market. It is also important to review and update salary bands annually or biannually, taking into account inflation, market movements, or organizational changes. Additionally, criteria and guidelines for assigning employees to salary bands should be established based on factors such as job duties, skills, experience, education, performance, or potential. Furthermore, employees and managers should be informed about the purpose and principles of the compensation structure as well as how pay decisions are made and evaluated. Lastly, pay data and trends should be monitored and analyzed to identify any signs of compression or overlap within or across salary bands.

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4 How to resolve salary band compression and overlap?

If your organization is facing salary band compression or overlap, you must take action to restore pay equity and fairness. Redesigning your salary bands, reallocating or reclassifying employees, and adjusting salaries are viable solutions. You may also consider implementing alternative forms of compensation, such as variable pay, incentives, recognition, benefits, or non-monetary rewards. By understanding the causes and consequences of these issues, and applying the tips and strategies shared, you can ensure that your salary bands are fair, competitive, and effective in supporting organizational objectives and employee engagement.

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Clay Johnson, CCP

Compensation & Total Rewards Advisor | Consulting Director
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When budgets are tight, it may not be financially viable to resolve all known compression (or inversion) issues at once. That's okay because not all compression is of equal concern. I recommend taking a "risk reduction" approach: review all your compression issues and identify which represent the greatest risk of turnover and/or employee engagement issues. Which roles would be hardest to backfill? Which would cause the greatest disruption to the business and teammates? Which are relatively easy to backfill? Which roles have redundancies that can absorb the work? Asking these types of questions can help you use limited funds to resolve compression in a prioritized order.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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André do Carmo

Director at RH Senior |??Compensation & Benefits | ??Organizational Structure Design | ??Reward Systems | ??Performance Management | ??Salary Survey | ??Job Analysis & Evaluation
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Ao abordar o tema da sobreposi??o de faixas salariais e suas implica??es, há diversos aspectos adicionais que podem ser considerados para uma gest?o eficaz de remunera??o e para o desenvolvimento organizacional. Aqui est?o alguns pontos importantes: 1. Estratégias de Comunica??o Transparente 2. Análise Regular do Mercado 3. Políticas de Promo??o e Desenvolvimento de Carreira 4. Gest?o de Expectativas 5. Flexibilidade e Personaliza??o de Benefícios 6. Avalia??o de Impacto Interno 7. Compliance e Equidade

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Tarik Bazzy

Accomplished Human Resources Manager
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Consider also where your talent funnels are, so for example it's easy to have a career progression promotion where your role is staying the same and your scope and responsibilities are growing however there's a funnel at Senior Analysts to Managers, there's a finite number of roles available and as a result you may find that on average the time spent as a Senior Analyst is 3, 4, 5 years longer than it is for an Analyst. So you take this information and decide, should this impact my salary ranges, do I need a wider midpoint spread between levels that I have a talent funnel, or do I need a wider range to allow for growth (do I want to create more overlap because of it). Lots of options and approaches, find what is right for your organization

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How do you handle salary band compression or overlap issues?

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1 What is salary band compression?

2 What is salary band overlap?

3 How to avoid salary band compression and overlap?

4 How to resolve salary band compression and overlap?

5 Here’s what else to consider

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