Salary bands for small companies: a practical guide

Many small companies assume salary bands are only for large corporations with dedicated compensation teams. In practice, they can be built with a simple six-step method, no complex software or external consultants required.

This guide walks through that method step by step, aimed at small companies that want an objective, defensible pay structure.

Step 1: List every role

Start with a full list of the roles in your company, not the people. A single role can have several people in it, and that's fine: you're valuing the role, not the current holder.

Step 2: Score each role on 4 objective criteria

For each role, assign a score against the four factors used under the EU Pay Transparency Directive: skills, effort, responsibility and working conditions. Use a simple scale, such as 1 to 5, and apply it consistently across every role.

• Skills: qualifications, experience and technical knowledge required
• Effort: physical or mental demands, required concentration
• Responsibility: impact of decisions, people or budget managed
• Working conditions: environment, hours, risks associated with the role

Step 3: Group roles into grades

Using the scores, group roles of similar value into grades. You don't need many. In a small company, 4 to 8 grades is usually enough to cover everything from entry-level roles to leadership.

Step 4: Set the band width for each grade

Each grade should have a minimum, a midpoint and a maximum. As good practice, ValuGrade suggests a band width of roughly 30% at lower grades and up to 40% at higher grades, where individual performance tends to matter more.

Grade 2 (operational roles): minimum €24,000, midpoint €27,500, maximum €31,000

Grade 6 (department head): minimum €52,000, midpoint €61,000, maximum €73,000

Step 5: Identify outliers

Compare actual current salaries against the newly defined bands. It's common to find people below the minimum or above the maximum for their grade. Flag these cases and plan gradual adjustments, you don't need to fix everything at once, but you do need a documented plan.

Step 6: Document and communicate

A salary band that only exists in an internal spreadsheet doesn't achieve much. The Directive requires that pay and pay progression criteria be accessible to workers, and that each worker can request their individual pay level and the average pay by sex for the same work or work of equal value, with a reply within a reasonable time and at most two months. Employers must also inform workers annually of this right.

Write down the method you used, the grades and their ranges, and prepare clear communication for the team. This also makes it much easier to respond quickly when someone exercises their right to request information.

Common mistakes when scoring roles

A common mistake is letting a single person score every role with no cross-check. It's better to have at least two people score roles independently and then compare results, to reduce the effect of personal bias. Another common mistake is scoring the role based on the person currently in it, rather than valuing the role itself.

Handling bonuses and benefits

Salary bands usually cover base pay, but many companies also offer bonuses, remote-work allowances or health cover. Decide upfront whether these count as part of the band or are managed separately, and apply that choice consistently across grades to avoid unfair comparisons between similar roles.

Review bands regularly

A salary band calculated once loses its usefulness over time. Review your bands at least annually, taking into account labour market movements and internal changes such as new roles or team restructuring.

Getting buy-in before rollout

Before communicating new bands to the whole company, brief managers first. They'll be the ones fielding questions from their teams, so give them the method, the grade definitions and clear talking points for outlier cases ahead of the wider announcement.

Tools to get started today

If you want to test the method on one role before rolling it out company-wide, the free salary range generator gives you a first indicative range in minutes. To build the full band structure across your company, ValuGrade's step-by-step wizard walks you through role by role.

Rules on reporting and national implementation differ across the EU, so it's worth checking the current status for the countries where you employ people on ValuGrade's country status page.