How to Refresh Your Salary Structure

Action items on how to effectively refresh your salary structure & pay bands, plus Mark Cuban announced as speaker at The Grove Conference.

You’ve defined your job levels and future state Job Architecture , you’ve gathered market data, and you’ve created your go-forward salary ranges for all your roles . That’s a lot of leg work. You could pat yourself on the back and let it ride, but the dynamic pace of the talent market means compensation practices don’t fit into a neat “set it and forget it” box.

Salary bands are “high maintenance” in the sense that they require constant attention and evaluation to ensure market competitiveness and internal pay fairness at any given moment in time.

Before wrap up our Salary Structure Series with Calvin Croskey , Compensation Advisor at Sequoia , let’s briefly recap why salary structures matter. Aside from the obvious benefit of controlling compensation & people spend from a forecasting perspective, a startup with a strong salary structure typically does all of the following better:

• Attracting quality candidates
• Motivating & retaining top talent employees
• Ensuring pay fairness & internal pay equity
• Maintains compliance with applicable local, state, and federal laws and regulations
• Enables quick, efficient, and confident decisions regarding employee pay

Now, let’s tie a bow on it by digging into what an effective and best practice salary band refresh process may look like:

?? Salary Band Refresh TIMING:

Companies will typically review their existing salary bands on one of three cadences:

Bi-Annually: this is typically for companies who operate in industries or markets that are known to change rapidly

• Key Benefits: with more frequent reviews, companies will have a strong “pulse on the market” and be able to quickly adjust ranges due to constantly changing market conditions such as inflation, industry demand, and talent shortages
• Key Drawbacks: with more frequent reviews, especially if a company is still leveraging excel spreadsheets, continuous salary band refreshments can be extremely administrative burdensome and have a “never-ending” feeling

Annually: reviewing salary ranges every year, often during the quarter leading up to your company’s annual merit or compensation planning cycle, is by far the most common practice amongst organizations today

• Key Benefits: this is by far the most common timing, typically aligns with most companies performance management cycles, and conducing annual salary band reviews strike a nice balance between being proactive and avoiding excessive administrative costs or time investments on your HR/Compensation teams
• Key Drawbacks: some employees may consider a once-a-year review inflexible to sudden economic market changes and may become “outdated” in the eyes of employees / thus less connected to the salary band refresh process

Every Two Years (or more)

• Key Benefits: longer review cycles reduce the workload and resource demands on the HR/Compensation team and may afford a company to review/analyze large amounts of market data & pay trends before “acting” on them, rather than reacting to short-term fluctuations in the market
• Key Drawbacks: regardless of industry or market, reviewing salary bands every 2 years (or longer) may bred employee dissatisfaction, runs the significant risk of falling behind market competitive levels and cause disparities in internal pay equity given ranges may not be addressed for long periods of time

?? Salary Band Refresh METHODOLOGY:

Companies with Job-Based Ranges (aka Market Reference Points):

• Common Action: Compare specific market data points based on your compensation philosophy (e.g. market 50th) to your existing salary range targets (i.e. your salary range midpoints) for each role to understand market rate movements by individual job.
• Purpose: This salary structure approach ensures your salary ranges are the most competitive to market possible & reflect up-to-date, point-in-time market conditions from the onset.

Companies with Functional Ranges:

• Common Action: Since multiple functions are grouped together under this salary structure design, instead of independently tracking the market movement of every job individually contained, companies may often 1) identify a few “anchor” functions within each salary range grouping to understand market data movement and leverage these as the primary drivers for adjusting existing salary bands or 2) review market data movement across all functions/jobs within the grouping and then apply an average or median calculation when considering band movement (usually up to a certain max movement amount or percentage).
• Purpose: This salary structure approach helps maintain internal pay equity across “like” or similarly paid functions are compensated in align with general market movement.

?? Salary Band Refresh DECISIONING:

More Formulaic Driven (at least to serve as a starting point):

• Common Action: Companies will consider adjusting salary ranges in cases such as: the refreshed market data is showing X% higher or lower than the existing salary range midpoint
• Purpose: This refresh methodology provides a clearer cut, more data-driven approach for deciding which salary bands to review in more depth, and subsequently, when to actually adjust existing salary bands?(which will often come with a cost to the company, especially if moving salary band midpoints higher)

More Informal / Discretionary Adjustments:

• Common Action: Companies may review existing salary ranges and on a more discretionary basis determine which ranges to adjust in a given year driven by senior leader / business recommendations, material org changes, hiring challenges within particular jobs, time since last band refresh, etc. All of this decisioning typically considers data interpretation, market conditions, company budget, organizational strategy, and senior leadership team (SLT) input.
• Purpose: This refresh methodology allows for ultimate flexibility for timely adjustments based on evolving business needs, budget, talent pool and market dynamics.

? Salary Band Refresh IMPLEMENTATION:

Overall Cost:

• Common Action: Before implementing any changes to existing salary bands, companies should model out the cost for doing so, specifically reviewing the cost a company will incur for bringing existing employees to any new salary range minimums.
• Purpose: This ensures that the financial impact of salary adjustments is understood and budgeted for, preventing any unexpected financial strain on the organization and ensuring all existing employees are paid within your new salary ranges.

Employee Communications:

• Common Action: Companies may share their updated salary ranges with employees and people managers prior to official rollout. With that said, the level of transparency will vary based on the company’s pay transparency philosophy.
• Purpose: Clear communication helps manage employee expectations and fosters trust. It also ensures that managers are equipped to explain and justify any changes to their teams.

The Takeaway: There is no one-size-fits-all solution. Each company is different, with a diverse pool of talent who are likely distributed across the country or even globally.

Startups have different stages of funding, growth trajectories, revenue targets, timelines, and goals. Having a process in place that regularly re-evaluates compensation practices - your largest expense as a company - keeps startups & its employees focused on the broader mission of the organization.

Check out Sequoia’s 2024 Compensation Practices Report here:

Compensation Practices Report

??The Grove Conference ‘24

Sequoia friends & clients! Join us at The Grove Conference 2024 , our premier annual client event, to connect and learn with peers, thought leaders, and the Sequoia team.

Hear from industry experts and leaders from top people-driven, tech companies who’ve approached these same concerns and developed thriving programs. You’ll also hear insider announcements on what’s next from Sequoia, our key partners, and vendors.

Speakers include:

• Keith Ferrazzi - #1 NYT Best Selling Author, Speaker & Exec Coach (SF)
• Mark Cuban - President of Mark Cuban Cost Plus Drugs Company (NY)
• Bryan Morris - CFO of Demandbase (SF)
• Annie Tombatore - CPO of Vox Media (NY)
• David Rolefson - COO of Yuga Labs (SF)
• Toni Fritz - VP of HR, Total Rewards and Operations at Chobani (NY)

Plus, choose from three breakout tracks that cover:

• Compensation Strategies
• Benefits & Compliance Strategies
• CxO Conversations

Register Here

Thank you for reading and joining on this journey with me!

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?? Quick about me:

I’m Cris Cafiero, and for nearly a decade, I’ve collaborated with founders, CFOs, and people leaders of early-stage, venture-backed startups. As an ex-Zenefits, ex-ADP, and now Business Consultant for Sequoia, I help startups build scalable people management infrastructure and maximize their people investment through compensation & benefits strategies.

Based in LA, I share my life with my wife and our two dogs. I’m into NBA drama, Marvel, reading, video games, computer-building, real estate investing, and lifelong learning.

I care about helping startups build a thoughtful, people-first culture and hope you find the topic as interesting as I do.

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