Salary Structure

How a salary structure works

A structure has three moving parts.

Grades. Groups of jobs of similar value. A mid-size company might use 12 to 20 grades from entry-level hourly to senior leadership. Jobs are placed in grades through market pricing, job evaluation or both.

Ranges. Each grade has a minimum, midpoint and maximum. The individual pay range for a grade is often called a salary band.

Progression and overlap. Midpoints step up from grade to grade, and neighboring ranges overlap so an experienced employee in one grade can earn more than a new employee in the grade above.

Typical design choices practitioners use:

• Range spread of 20% to 40% for hourly and non-exempt grades, 40% to 60% for professional grades, 60% to 100% for executive grades.
• Midpoint progression of 7% to 10% between lower grades and 12% to 20% between senior grades.
• Overlap of 30% to 60% between neighboring grades.

Building a structure step by step

1. Agree the philosophy. Your compensation philosophy decides the market you compare against and the target percentile.
2. Price benchmark jobs. Pull survey data for 30% to 50% of your jobs that have clear market matches. These anchor the structure.
3. Set grade midpoints. Fit a line through benchmark market rates and set midpoints at regular progression steps.
4. Apply range spreads using the formula above.
5. Slot every job. Benchmark jobs go to the grade nearest their market rate. Non-benchmark jobs are slotted by comparison or job evaluation, ideally within a defined job architecture of families and levels.
6. Place employees and cost it. Compare current pay to new ranges. Anyone below the minimum needs an adjustment plan; anyone above the maximum is red-circled (pay frozen until the range catches up).
7. Maintain it. Move ranges every year by the market movement rate, often 2% to 4% in a normal year.

Types of salary structures

• Traditional graded structure: many narrow grades. Clear and easy to administer, but promotions can feel like box-ticking.
• Broadband structure: few wide bands (sometimes 100% spread or more). Flexible for flat organizations; harder to keep pay consistent.
• Market-based or job-family structures: separate structures for groups like IT, sales and operations, because their markets move differently.
• Step structures: fixed steps within each grade, often by tenure. Common in government, unions and some healthcare settings. Predictable, with little room for performance differentiation.
• Hourly rate cards: for large frontline workforces, many employers use a simple rate card by job and location instead of full ranges, with defined step increases at 6, 12 and 24 months.

Why it matters for high-volume employers

When hiring at scale, a missing structure shows up fast. Recruiters negotiate each offer, sites set their own rates, and a year later two agents hired the same month on the same team earn $1.50 apart. That creates pay equity risk and resentment.

A simple hourly rate card per role and site, plus a rule for where new hires start, lets recruiters make offers in minutes without approval chains, and gives managers a clear answer when employees ask how to earn more. It also makes pay transparency compliance straightforward, since many US states now require pay ranges in job postings.

Common mistakes

• Building ranges from current pay instead of the market. That locks in the inconsistencies you already have.
• Too many grades. Twenty-five grades for 400 employees invites endless debates over whether a job is grade 11 or 12.
• Never moving the ranges. In a tight labor market, ranges fall behind within a year or two and new-hire offers pile up at the maximum.
• No rules for placement in range. Without them, the structure exists on paper while offers follow negotiation skill.
• Ignoring compression. If minimums rise faster than existing pay, long-tenured staff end up close to new hires.