Salary Bands: How to Build a Pay Structure Step by Step

Salary bands are pay ranges, each with a minimum, midpoint and maximum, that you assign to groups of jobs of similar value (called pay grades). To build them, you rank your jobs through job evaluation, price benchmark jobs against market data such as the BLS Occupational Employment and Wage Statistics (OEWS), set a midpoint for each grade, then add a range spread around it. Done well, bands give you a consistent, defensible basis for every hiring offer, raise and promotion.

This article is general information, not legal advice.

Key takeaways

• A pay structure is a set of pay grades, and each grade carries a salary band with a minimum, midpoint and maximum.
• The midpoint usually reflects the market rate for a fully competent employee; the spread controls how far pay can move within the grade.
• Build bands from job evaluation plus market data, not from what current employees happen to earn.
• Compa-ratio (pay divided by midpoint) is the quickest way to see where each employee sits in the band.
• Bands support pay transparency and Equal Pay Act compliance only if you document how jobs are placed and how pay is set within the range.

What is a pay structure and how do salary bands work?

A pay structure is the framework that groups jobs into pay grades and attaches a salary range to each grade. A salary band is that range: the lowest and highest base pay your organization will normally offer for any job in the grade.

A pay grade is a level that holds jobs of roughly equal internal value. A junior accountant and a junior marketing analyst might sit in the same grade even though their work differs, because your evaluation rates them as similar in skill, effort and responsibility. Each grade then gets one band, so you do not need a separate range for every job title.

The federal government offers a well known public example. The OPM General Schedule has 15 grades, each with 10 step rates worth about 3 percent of salary, plus locality pay that adjusts for pay levels in different areas. Most private employers use fewer fixed steps, but the logic is the same.

Clear grades start with clear jobs. If your job content is vague, fix that first with job analysis methods and outputs and accurate job descriptions that capture duties and requirements.

What do range minimum, midpoint, maximum and compa-ratio mean?

These terms describe the shape of each band and where an employee sits in it. Learn them once and you can read any pay structure.

• Range minimum: the lowest base pay for the grade. It is typically for someone who meets the basic requirements but is still learning the job.
• Midpoint: the middle of the band. Most employers set it near the market rate for a fully competent employee in the grade's benchmark jobs.
• Range maximum: the highest base pay for the grade. Pay above it usually requires a promotion to a higher grade.
• Range spread: the width of the band, calculated as (maximum minus minimum) divided by minimum. A band from 50,000 to 75,000 has a 50 percent spread.
• Midpoint progression: the percentage difference between one grade's midpoint and the next. It controls how much more a promotion to the next grade is worth.
• Compa-ratio: an employee's base pay divided by the band midpoint. A compa-ratio of 1.00 means pay equals the midpoint; 0.90 means pay is 10 percent below it.
• Range penetration: how far through the band an employee sits, calculated as (pay minus minimum) divided by (maximum minus minimum).

Spreads usually widen as grades rise. Entry and hourly grades often use narrower bands because people master the work quickly, while senior professional and leadership grades use wider bands because growth in the role takes longer and varies more.

How do you build salary bands step by step?

You build bands by ranking jobs internally, pricing benchmark jobs externally, and then fitting a set of midpoints and spreads that connect the two.

1. Set your pay philosophy. Decide whether you want to pay at, above or below the market, which market you compete in (local, national, or industry), and how much weight base pay carries versus incentives and benefits.
2. Run job evaluation. Group jobs by internal value. Simple methods include job ranking and slotting; more formal ones use point factor plans that score skill, effort, responsibility and working conditions. Evaluate the job, not the person in it.
3. Pick benchmark jobs. Choose jobs that are common across employers and well described, such as payroll specialist or software developer, so you can match them reliably to survey data.
4. Collect market data. The BLS OEWS program publishes annual wage estimates for roughly 830 occupations at the national, state and metropolitan level, with May 2025 the latest reference period. Match each benchmark by duties, not title, and use the geography that fits each role.
5. Adjust and age the data. OEWS covers wages and salaries only and excludes nonproduction bonuses and benefit costs, per the OEWS frequently asked questions. Its estimates also pool six survey panels over three years, so treat them as a starting point and supplement with other surveys where you can.
6. Set midpoints. Plot benchmark market rates against your job evaluation grades and draw a line that fits them. Read each grade's midpoint off that line, then smooth the series so midpoint progression is steady.
7. Set spreads and calculate ranges. Choose a spread per grade, then calculate: minimum equals midpoint divided by (1 plus half the spread), and maximum equals minimum times (1 plus the spread).
8. Place employees and cost the gaps. Compare each person's pay to the new band. Price the cost of moving anyone below minimum up to it, and decide how to treat anyone above maximum.
9. Document and approve. Write down your methods, data sources and decisions, and get sign off from finance and leadership before rollout.

Illustrative example: a five grade structure

The table below uses clearly hypothetical numbers to show how midpoints, spreads and ranges fit together. It is not market data and should not be used to set real pay.

Grade	Range minimum	Midpoint	Range maximum	Range spread	Midpoint progression
Grade 1	$40,000	$48,000	$56,000	40%	n/a
Grade 2	$45,000	$54,000	$63,000	40%	12.5%
Grade 3	$50,400	$63,000	$75,600	50%	16.7%
Grade 4	$57,600	$72,000	$86,400	50%	14.3%
Grade 5	$64,000	$83,200	$102,400	60%	15.6%

Now take a hypothetical employee in Grade 3 earning $59,850. Their compa-ratio is 59,850 divided by 63,000, or 0.95. Their range penetration is (59,850 minus 50,400) divided by 25,200, or 37.5 percent. That tells you they are paid a little below the market rate for a fully competent person in the grade, with room to grow.

Adjacent bands overlap, which is normal. Too much overlap, though, makes promotions feel meaningless.

When does broadbanding make sense?

Broadbanding makes sense when you want fewer, wider bands that support lateral moves and flatter structures. It replaces many narrow grades with a handful of bands, often with spreads of 100 percent or more.

The appeal is flexibility: managers can reward growth without a formal promotion, which suits organizations built around projects, skills or dual career tracks.

The trade off is control. A very wide band gives little guidance on where a new hire should land, so pay decisions drift toward manager judgment and negotiation skill. If you broadband, add reference points inside each band (for example, market rates for specific roles) and require documented reasons for placement.

How do pay transparency laws and the Equal Pay Act affect salary bands?

Pay transparency laws often require you to share a pay range, and the Equal Pay Act requires equal pay for substantially equal work. A well built band structure makes both easier to meet, but it does not make you compliant by itself.

The Equal Pay Act of 1963 bars paying one sex less than the other within an establishment for equal work on jobs requiring equal skill, effort and responsibility, performed under similar working conditions. Pay differences are allowed only when based on a seniority system, a merit system, a system measuring quantity or quality of production, or a factor other than sex. The law also says an employer may not reduce anyone's wage to fix a gap.

The EEOC's equal pay guidance notes that job content, not job titles, decides whether jobs are substantially equal, and that the law covers all forms of pay, including salary, overtime, bonuses and benefits. Title VII, the ADEA and the ADA also bar pay discrimination based on race, color, religion, sex, national origin, age or disability.

What this means for your bands:

• Placing two people in the same band does not justify paying them differently. Write down the factor that explains each difference, such as documented experience or performance ratings.
• Check starting offers. Gaps often begin at hire, when negotiation or prior pay drives placement.
• Run a regular pay equity audit using compa-ratios by grade and demographic group.

Many states and cities now require employers to post a salary range in job ads or share it with applicants. Requirements vary, so see this state by state guide to salary range posting rules. Separately, the NLRB explains that covered employees have the right to discuss their wages with coworkers, and policies that ban or chill those conversations are unlawful. Assume your bands will become known.

How often should you update salary bands?

Review bands at least once a year and rebuild them every two to three years, or sooner if hiring data shows you are consistently losing candidates on pay.

A practical maintenance routine looks like this:

• Annual structure adjustment: move all midpoints by a percentage that reflects market movement, separate from individual merit budgets.
• Job re-evaluation: re-grade jobs whose duties have changed, and grade new jobs before you post them.
• Red-circle and green-circle reviews: a red-circled employee is paid above the band maximum; a green-circled employee is paid below the minimum. Bring green-circled employees up to minimum on a set timeline, and freeze or slow increases for red-circled employees until the band catches up. For moves between grades, see whether you can demote an employee without cutting pay.
• Compa-ratio reporting: track average compa-ratio by grade, department and manager to spot drift.
• Classification checks: confirm that salary levels and duties still support each job's FLSA status, using this guide to exempt vs non-exempt rules.

Common mistakes to avoid with salary bands

Most band failures come from shortcuts in data or documentation, not from the math.

• Building bands around current pay. If you anchor midpoints on what people earn today, you lock in any existing inequities.
• Matching on title alone. A "manager" at a 30 person firm and at a 30,000 person firm may do very different work. Match market data on duties and scope.
• Ignoring geography. A single national band can overpay in low cost areas and underpay in high cost ones. Use geographic differentials where your workforce is spread out.
• Too many grades. Grades that differ by a few percent create endless arguments about placement. Keep midpoint progression meaningful.
• Letting exceptions pile up. Every offer above maximum or below minimum should need approval and a written reason.

FAQ

What is the difference between a pay grade and a salary band?

A pay grade is a level that groups jobs of similar internal value. A salary band is the pay range (minimum, midpoint and maximum) attached to that grade. People often use the terms interchangeably, but the grade is the job level and the band is the money.

What is a good compa-ratio?

There is no single right number, but many employers aim for an average near 1.00 for experienced, fully competent staff. New hires and people still learning the role commonly sit below 1.00, while long tenured high performers often sit above it.

How wide should a salary band be?

It depends on the level. Entry and hourly grades often use narrower spreads, while professional and leadership grades use wider ones. The illustrative table above uses 40 to 60 percent, and broadbands can run 100 percent or more.

Do small businesses need salary bands?

Once you have more than a handful of roles, simple bands help you make consistent offers and explain pay decisions. Start with a few grades and public market data, then refine as you grow and as tools for compensation management technology become worth the cost.

What to do next

1. Write a one page pay philosophy and get leadership to agree to it.
2. List your jobs, confirm job descriptions are current, and pick 10 to 20 benchmark jobs.
3. Pull OEWS data for those benchmarks in the geographies you hire in.
4. Draft grades, midpoints and spreads, then place every employee and cost the gaps.
5. Check the result for equal pay risk before rollout, and set a date for next year's review.

Sources

• U.S. Bureau of Labor Statistics: Occupational Employment and Wage Statistics
• U.S. Bureau of Labor Statistics: OEWS Frequently Asked Questions
• U.S. EEOC: The Equal Pay Act of 1963
• U.S. EEOC: Equal Pay/Compensation Discrimination
• U.S. Office of Personnel Management: General Schedule Overview
• National Labor Relations Board: Your Right to Discuss Wages

Last reviewed: November 2026.