Compensation 101: bands, philosophy, and why 'we'll figure it out per person' doesn't scale
If you're making pay decisions person-by-person, you're building debt you'll repay with interest. Here's the beginner's tour of comp — philosophy, bands…
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- Comp = base + variable + equity + benefits. Most decisions are about base + equity.
- A philosophy is one paragraph: where we pay relative to market, who we benchmark against, what we reward.
- Bands stop the per-person negotiation spiral and make pay equity possible.
- Start simple: 5-7 levels, one band per level per geography, refresh annually.
Compensation is the most common reason early-stage teams accidentally create inequity. Not because anyone meant to — because each offer was made in a vacuum. The fix is structure, and the simplest structure beats none.
What 'comp' actually means
| Component | What it is | When it matters most |
|---|---|---|
| Base salary | Fixed cash, paid regularly | Always |
| Variable / bonus | Performance-linked cash | Sales roles; senior roles |
| Equity | Ownership in the company (options or RSUs) | Early-stage; senior hires |
| Benefits | Healthcare, pension, leave, etc. | Differentiator at scale |
Pick a philosophy
Your comp philosophy is one paragraph that says: where do we pay relative to market (60th percentile? 75th?), who do we compare ourselves to, and what behaviours do we reward (performance? tenure? skill?). Write it down. Show it to candidates. Use it to defend decisions.
Build simple bands
- Define 5-7 levels (e.g. L1 = new grad, L5 = senior, L7 = principal/director).
- For each level, pick a band: 'L3 in our home geography pays £55k-£75k base'.
- Use market data (Levels.fyi, Pave, Mercer, Radford) to set the midpoint.
- One set of bands per main geography. Don't try to differentiate every city until you have to.
Making the call
- Always: 'where in the band does this person sit and why?'
- Never: 'what did they ask for?' as the primary anchor.
- Document the rationale — future you will thank present you.
- If the band doesn't fit, fix the band, not the offer.
Before any offer, check: is this offer in line with peers in the same band? If not, the cheapest fix is now. The expensive fix is the pay equity audit you'll run in 2 years.
Where to go next
- Comp philosophy in detail.
- RSUs vs options for equity grants.
- End-to-end comp review cycle.
- Pay equity audit in 30 days.
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