To assist in the administration of compensation plans, most organizations utilize some type of formal pay structure. A formal pay structure provides the framework and formal structure for assessing jobs and grouping similar jobs together. Factors used in grouping jobs within a pay structure often include:
- Level of supervision
- Organizational impact
- Market value
The two most common forms of pay structures are grades and bands. The distance between the minimum and maximum of a pay range is called the range spread. Grades typically have very narrow range spreads, while bands have very broad range spreads. This has led to the commonly used term of "broadband" to describe the range of pay rates within a structure using a band approach.
Unlike the old pay grade system where an increase in responsibilities often meant a promotion to the next pay grade, the current pay bands system represent a much broader range of different types of jobs and levels of responsibility.
By utilizing the pay band system, it is not necessary to be moved from one band to another in order to receive a significant salary increase. Additionally, just because two positions have different levels of responsibility, complexity etc., does not necessarily mean that they should be in different pay bands.