A salary band defines the range between minimum and maximum salary for a specific position or job group. It creates transparency, facilitates budget planning, and promotes fair compensation. With the EU Pay Transparency Directive 2026, salary bands will become mandatory for many companies – employers will soon be required to inform applicants about salary ranges before hiring.

What Is a Salary Band? Definition and Distinction

A salary band (also known as pay band, compensation range, or in German: Gehaltsband/Entgeltband) is a compensation management tool that establishes the lower and upper limits of salary for a specific position or job family. It structures pay within an organization and makes compensation decisions transparent and traceable.

Unlike rigid pay grades commonly found in collective bargaining agreements, salary bands offer more flexibility. They allow organizations to consider individual factors such as professional experience, qualifications, or performance within the defined range.

Salary Band vs. Pay Grade

While pay grades are often fixed by collective agreements, salary bands are defined company-specifically. In organizations bound by collective agreements, the negotiated wages often serve as the lower limit, while the upper limit is set individually. In non-tariff areas, companies have complete freedom in designing their salary bands.

Structure of a Salary Band

A classic salary band consists of three elements:

Minimum, Midpoint, and Maximum

The minimum marks the entry-level salary for the respective position – typically for career starters or employees who have just transitioned into this role.

The midpoint lies exactly between the minimum and maximum. It is often aligned with the market average for comparable positions and serves as a reference point for salary negotiations. Employees who solidly fulfill their role should be positioned around the midpoint.

The maximum defines the ceiling for this position. This is where experienced employees with above-average performance or special qualifications are positioned.

Bandwidth: How Wide Should a Salary Band Be?

The bandwidth describes the spread between minimum and maximum. Typical ranges lie between 20% and 50% – depending on the position and industry:

Narrow bands (under 20%) provide more structure and comparability but leave little room for individual development. Wide bands (over 40%) allow more flexibility but carry the risk of reduced transparency.

Overlapping Salary Bands

In practice, salary bands frequently overlap. This means: An experienced specialist in the upper range of their band can earn more than an entry-level employee in the next higher band. This overlap is intentional – it prevents employees from automatically expecting a salary jump upon promotion when they still need to gain experience in the new role.

Benefits of Salary Bands

Transparency and Fairness

Salary bands make compensation decisions traceable. Employees understand where they stand within the range and what development opportunities exist. This strengthens trust in the company's compensation policy.

Budget Control and Predictability

For HR and management, salary bands provide a clear framework for workforce cost planning. Salary increases can be better managed, and the risk of uncontrolled salary developments decreases.

Reduction of Bias and Gender Pay Gap

Structured salary bands can help reduce unconscious bias in compensation decisions. When clear criteria for positioning within the band are defined, subjective factors such as negotiation skills or personal sympathy become less relevant. This can reduce the gender pay gap in the long term – according to Germany's Federal Statistical Office, this gap was still around 16% in 2024.

Legal Framework (Germany/EU)

Pay Transparency Act (Since 2017)

The German Pay Transparency Act (Entgelttransparenzgesetz, EntgTranspG) has been in effect since July 2017. It grants employees in companies with more than 200 workers the right to information: They can learn how colleagues of the opposite gender are compensated on average for comparable work.

Companies with more than 500 employees also have reporting obligations regarding pay equality. However, the practical impact of the law has been limited – according to the 2023 evaluation report, only about 4% of employees have exercised their right to information.

EU Pay Transparency Directive 2026

The EU Pay Transparency Directive (2023/970) significantly tightens requirements. It must be transposed into national law by June 2026. The key changes:

• Transparency in the application process: Employers must inform applicants about the starting salary or salary range before contract conclusion
• Ban on salary history inquiries: Employers may no longer ask about previous salary
• Extended reporting obligations: Already applicable from 100 employees (instead of 500)
• Stricter sanctions: Effective penalties for violations

For companies, this means: Those without structured salary bands should start implementing them now.

Implementing Salary Bands: 5 Steps

Step 1: Analyze and Evaluate Positions

Evaluate all positions in the company according to uniform criteria such as responsibility, requirements, complexity, and qualifications. Analytical job evaluation has established itself as the standard.

Step 2: Research Market Data

Use salary studies and benchmarks to determine market-standard compensation for the respective positions. Sources include consulting firms (such as Kienbaum, Mercer, or Willis Towers Watson), job platforms, and industry associations.

Step 3: Group Positions

Combine positions of similar value into groups (grades). Typically, companies have between 8 and 15 salary groups.

Step 4: Define Bandwidths

Define the minimum and maximum for each group. The midpoint should align with market average. Common calculations: Minimum = Midpoint minus 15–25%, Maximum = Midpoint plus 15–25%.

Step 5: Update Regularly

Salary bands must be adjusted to market developments, inflation, and company strategy. An annual review is recommended.

Common Mistakes in Salary Band Design

• Not using market data: Salary bands without external benchmarks quickly become unrealistic
• Bands too narrow: Leave no room for experience differences
• Bands too wide: Lead to lack of transparency and perceived unfairness
• Lack of communication: Employees don't understand the system
• No regular updates: Bands lose touch with the market
• Unclear criteria: Positioning within the band appears arbitrary

Frequently Asked Questions About Salary Bands

What is a salary band?

A salary band defines the range between minimum and maximum salary for a position. It consists of minimum, midpoint (average), and maximum and serves to structure and create transparency in compensation.

Are salary bands legally required?

Currently, there is no direct obligation to implement salary bands. However, with the EU Pay Transparency Directive, employers must inform applicants about salary ranges from June 2026 onwards – de facto making structured salary bands necessary.

How wide should a salary band be?

Typical bandwidths range between 20% and 50%. Entry-level positions usually have narrower bands (15–25%), leadership positions wider ones (35–50%). The optimal width depends on industry, company culture, and objectives.

What is the midpoint in a salary band?

The midpoint is the average between minimum and maximum. It often aligns with market average and serves as a reference point for salary negotiations and development.

Can salary bands overlap?

Yes, overlaps are common and intentional. An experienced specialist can earn more than an entry-level employee in the next higher salary group. This promotes flexibility and reduces pressure during promotions.

What changes in 2026 with the EU Directive?

From June 2026, extended transparency requirements apply: Salary ranges must be communicated during the application process, asking about previous salary is prohibited, and reporting obligations apply from 100 employees onward.

How do I communicate salary bands to employees?

Explain the logic and criteria of salary bands transparently. Show how development within the band works and which factors influence positioning. Offer individual conversations when there is uncertainty.

Salary band vs. pay grade – what's the difference?

Pay grades are usually collectively negotiated and fixed. Salary bands are defined company-specifically and offer more flexibility for individual factors such as experience and performance.

Conclusion

Salary bands are a central instrument for fair, transparent, and predictable compensation. They help HR professionals make salary decisions traceable and reduce bias. With the EU Pay Transparency Directive 2026, structured salary bands will become de facto mandatory for many companies.

Those who start implementing them now gain a competitive advantage – and benefit from higher employee satisfaction, better budget control, and a positive employer image.

Legal notice: This article is for general information purposes only and does not constitute legal advice. For specific legal questions, please consult a qualified employment lawyer.

Sources

• Entgelttransparenzgesetz (German Pay Transparency Act). Federal Law Gazette, 2017.
  https://www.gesetze-im-internet.de/entgtranspg/
• EU Pay Transparency Directive 2023/970. European Parliament and Council, 2023.
  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023L0970
• Information on the Pay Transparency Act. Federal Ministry for Family Affairs, Senior Citizens, Women and Youth (BMFSFJ), 2023.
  https://www.bmbfsfj.bund.de/bmbfsfj/themen/gleichstellung/frauen-und-arbeitswelt/lohngerechtigkeit/entgelttransparenzgesetz/
• Gender Pay Gap – Earnings differences between women and men. Federal Statistical Office (Destatis), 2024.
  https://www.destatis.de/DE/Themen/Arbeit/Verdienste/Verdienste-GenderPayGap/
• Kienbaum Compensation Report. Kienbaum Consultants International, 2024.
• Salary Report Germany. StepStone GmbH, 2024.