What HR needs to teach managers about salary ranges

A few weeks ago I wrote about how AB-168 is changing culture around salary ranges.  As of California companies must (upon reasonable request) share the salary range for a role with a candidate. Other non-California companies are following suit, like Amazon and Progressive.  Our most recent blog post discussed how you can use job levels and salary bands to simplify this process.

Soon, it will be common for a new hire to understand the salary range for their new role, and where they fall in that range. However, the peers they are joining may not have the same insights into their own compensation. It’s going to fall to HR to sort out this tangle and make sure everyone has the information they need – including managers who are going to be on the front lines answering questions from their direct reports.

Let’s fast-forward…

Imagine a world where most of your new hires know what the salary band is for their job. Existing hires are unlikely to have the same information. Of course, those salary bands will change over time, tracking the market, which means that employees will have widely varying information.

Sometimes, an employee reports to the manager who created their salary offer. In other companies, that manager has no say in creating an offer package. The responsibility may fall to Recruiting, or to a more senior manager. Even when hiring managers create offers, employees often switch managers. So no matter your process, you’ll soon find that many managers don’t have the background on how an employee’s pay was decided. At the same time, you’ll have a growing number of employees who knew the salary band for their role when they joined.

Your managers are on the front lines of this change. Even if a manager has no direct say in setting an employee’s compensation, they’ll still face difficult questions. Managers then struggle to give appropriate answers. Most managers are novices at all things compensation—I know I was!—so they need lots of guidance and support.

Start with the basics

It’s important to educate your managers and make sure they have access to the information that they need.

Titles vs. Levels vs. Bands

How does your company think about Titles? Are they meaningful throughout the company? I’ve worked in companies where job titles were important and significant. I’ve also worked in companies where they were whimsical and didn’t say much about the job or seniority. Whether a title “matters” comes down almost wholly to company culture. In some roles, a title must also signal to non-employees, like customers.

How do Levels associate with those Titles, if at all? It’s not mandatory for Titles to have a direct association to a Level, and in some companies there’s no connection. In most companies, it’s common for Titles to provide a direct reflection of the job Level. This means that if you know someone’s title (say, a Senior Engineer) then you also know their Level (T4, in my last post). While most companies work this way, some do not. When Titles reflect Levels, it is the same as having all Levels be public inside the company. Depending on company culture, they may resist broadcasting employee levels—but that’s a post for later!

How do bands associate with those levels? Once you know an employee level, what is the salary band for that level? How does that band relate to the bands above and below it? Understanding how bands relate to each other helps managers think about employee promotions. As I said here, I’m a fan of overlapping bands because they let managers give raises without requiring a promo.

Where can a manager find this information for their employees? You probably won’t opt to share every salary band for every level with every manager. Instead, you’ll need to be ready to share salary bands for managers that make sense for their work and employees. Managers need range data for all the levels represented by their employees—plus one level above, so they can plan for promotions.

Range Penetration and Compa Ratios

How can managers use Compa Ratios? As much as I love Compa Ratios, in fairness I haven’t found that they make much sense to an individual manager. Compa Ratios are a great way to see how your organization is trending vs. bands. Managers often have far smaller groups to consider, and the big picture isn’t as meaningful to them.

How can managers use Range Penetration? Now Range Penetration—that seems to make more sense to individual managers. “This shows where in the band your employee is, and it’s easy to see when they are above or below range.” This explanation is both logical and easy for managers to visualize. For the compensation professionals, both Compa Ratios and Range Penetration can be useful. But when working with customers, I find the latter seems easier for “regular managers” to grasp.

Where can managers find this information for their employees? Most managers prefer that ratios and ranges come to them pre-calculated. Though labor-intensive, a spreadsheet is the common tool to share this information.

Did I mention that Compaas makes this part way easier? Our tools help managers understand how total compensation works—and how their teams measure up!

Photo by Clem Onojeghuo on UnsplashCompany compensation principles

How does the company balance cash vs. stock in employee compensation? An earlier-stage company may choose to pay much more stock and lower cash to reduce burn. Later-stage companies often pay higher cash and less total stock to employees.

How are we targeting against the market? As I said here, most companies use more than one source to determine their salary bands. Once you kind of know what the market is doing, you still have to decide where you want to sit. These targets are usually represented as percentages. For example, “We want to hit 60% of market salaries.” Especially for competitive roles, managers will be keen to understand how the company tracks against market data.

How transparent should I be with my employees about this? Give managers specific language to use! If the company is using more cash than stock for compensation, make sure managers know how to say that. If the company doesn’t want to share details of how they create salary bands, be clear on that point.

Total Rewards: Compensation is more than cash

Compensation has many different components. These include salary/wages, bonus, stock, and other benefits (healthcare, perks, commuter, etc.). Managers need to understand what falls into Total Rewards, and how to talk about them. Giving all employees a Total Rewards statement helps managers navigate these conversations.

When asked for advice…

Employees are going to ask managers for advice. I know this one from decades of personal experience. Compensation, especially when you include stock, can be confusing. Help your managers out by giving them specific language to use in common scenarios. For example, when asked about exercising options: “You should talk to a tax advisor before making a decision.”

Teach managers about the resources the company provides, too! If your company has existing docs, make sure your managers know how to find and share them. “It’s on the wiki” isn’t the right answer, but it’s often what people end up hearing.

Other things that can come up

Even managers who aren’t creating new hire offers will run into these challenges. You’ll need to prepare them for the compensation questions they’ll face as new hires bring new data with them.

For managers who support very senior people, they will also need to process having someone work “for them” who makes more than they do. I see this as is a rite of passage for all developing managers. Still, not everyone handles these realizations with grace. A bit of research can help predict who will need extra support as they learn more about compensation.

Managers also inherit people and teams they didn’t hire. This is another developing manager rite of passage. Because the manager didn’t hire every employee, they won’t know how their current pay came to be. Your more junior managers could use a heads-up that this is part of working with shifting teams.

Think through your team’s process for how you’ll share all this information with managers. You’ll want a process that is consistent, secure, and not burdensome for you or your team.

There is a lot of work involved in communicating compensation! Luckily, Compaas makes it easy to keep your data accurate, up to date, and understandable.

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