Introduction
Pay structures are the backbone of compensation strategy, yet many HR and compensation teams still manage them through outdated spreadsheets, stale survey data, and ad-hoc decisions that create equity risks and budget surprises. This article explains what pay structures are, walks through the major types of pay structures used by U.S. employers, and provides a practical framework for designing, choosing, and maintaining the right pay structure for your organization.
This content is written for HR, total rewards, and compensation professionals in U.S.-based organizations who are responsible for designing, updating, or rationalizing pay structures across job families, locations, and workforce segments. If you’re grappling with pay transparency laws that took effect in 2023 and beyond, hybrid and remote hiring complexity, pay equity pressure, or salary ranges that no longer reflect market rates, this article addresses those challenges directly.
A pay structure is the organized framework of pay grades or pay bands, salary ranges, and governing rules that determine how employees are paid—and the right pay structure is the one aligned to your compensation strategy, current market data, and compliance requirements.
By reading this article, you will:
-
Understand the core components of modern pay structures, including grades, bands, ranges, and controls
-
Compare major types of pay structures and learn when to use each
-
Follow a practical step-by-step process to design or refresh a pay structure using real-time market data
-
Learn how to handle hybrid roles, geo-differentials, and pay transparency requirements within your structure
-
Know when tools like SalaryCube’s real-time benchmarking and range builder can accelerate your work
Understanding Pay Structures
A pay structure is the formal system an organization uses to organize employee compensation into defined levels, ranges, and rules. It connects job responsibilities and market value to predictable, defensible pay decisions across the workforce. Without a coherent pay structure, organizations struggle to maintain internal equity, respond to market shifts, or explain pay decisions to employees, managers, and regulators.
This section covers the foundational concepts. Later sections will address specific types of pay structures and the practical steps to implement them.
What Is a Pay Structure in Practice?
A pay structure is the organized framework of pay grades or pay bands, salary ranges, and policies used to determine base pay, premiums, and pay progression for roles across an organization. In practice, a typical structure includes job evaluation or leveling criteria, ranges with minimum, midpoint, and maximum salary values, range spreads, and compensation policies such as hiring at 80–100% of the midpoint.
Consider a 2025 midsize tech company with a 10-grade structure. Grade 1 might have a salary range of $45,000–$58,000, while Grade 10 spans $180,000–$220,000. Each grade groups similar jobs based on job responsibilities, required skills, and market value. This design supports predictable labor costs, repeatable pay decisions, and defensible explanations for auditors and internal stakeholders.
Core Components of a Pay Structure
Every pay structure, regardless of type, relies on a set of building blocks:
-
Job levels / grades: Defined tiers such as Grade 1–12 or Level I–IV that group roles of similar value and scope.
-
Salary ranges: The minimum, midpoint, and maximum pay levels for each grade, with range spreads typically expressed as a percentage (e.g., 30% for entry-level, 50% for executives).
-
Compa-ratio and range penetration: Metrics that show where an individual’s pay sits relative to the midpoint or full range, essential for managing pay progression and internal equity.
-
Job families and career paths: Groupings like Engineering, Sales, or HR, each with dedicated ranges and progression rules.
-
Guiding policies: Rules for promotions, starting compa-ratios, off-cycle adjustments, and exceptions.
Platforms like SalaryCube’s salary benchmarking product can generate market-aligned ranges and compa-ratio views automatically, replacing fragmented spreadsheets with a single source of truth.
How Pay Structures Connect to Market Data and Internal Equity
Pay structures draw on two inputs: external market data (industry, geography, business size) and internal equity (consistent pay for similar jobs within the organization). U.S. employers typically use salary surveys and real-time salary data tools—such as SalaryCube’s Bigfoot Live—to set or adjust ranges annually or more frequently.
Compensation strategy often defines a “lead, lag, or match” philosophy. An organization that leads the market might set midpoints at the 60th percentile; one that matches sets them at the 50th. This philosophy flows directly into how ranges are built and maintained.
Now that you understand what a pay structure is and how it connects to market data, the next step is to compare the major types of pay structures and determine which fits your organization’s strategy.
Major Types of Pay Structures and When to Use Them
With the fundamentals in place, you can evaluate specific pay structure models. Most U.S. organizations in 2025 use a mix of different pay structures across workforce segments—hourly employees may be on step pay, while tech roles sit in broadband structures, and corporate staff use traditional grades.
Each subsection below explains the structure type, its best fit, and a concrete example with numbers.
Traditional Graded Pay Structures
A traditional pay structure organizes roles into multiple defined pay grades, each with a tight salary range and range spreads typically between 30% and 40%. Employees move up through pay increases within a grade or promotions between grades.
Example: A 300-employee manufacturing firm uses Grade 4 with a pay range of $60,000–$75,000 and Grade 5 at $70,000–$88,000. Progression follows annual merit increases and promotion decisions tied to job evaluations.
Best fit: Highly structured environments such as government agencies, large nonprofits, unionized segments, or organizations needing strong control and auditability over pay decisions.
Broadband Pay Structures
A broadband pay structure consolidates many narrow pay grades into a small number of wider pay bands—sometimes just four or five—each spanning a large pay range. This approach offers greater managerial flexibility but introduces higher risk of pay compression and inequity if oversight is weak.
Example: A SaaS company places all software engineers (Level I through Senior) in a single band from $95,000–$180,000, with internal zones by level for guidance.
Best fit: Flatter, fast-changing organizations—especially in tech and professional services—that prioritize career development, flexibility, and speed over strict hierarchy.
Market-Based Pay Structures
A market-based pay structure anchors ranges directly to robust market data for each job or job family, rather than strictly to internal hierarchy. U.S. employers use tools like SalaryCube’s real-time benchmarking to pull fresh salary data by metro area, industry, and business size, then set midpoints accordingly.
Example: In 2025, RN roles in Dallas are benchmarked at a midpoint of $92,000, with a 40% range spread, resulting in a salary range of $73,600–$110,400.
Best fit: Organizations competing heavily for specialized talent across multiple locations—healthcare, tech firms, engineering, and construction employers benefit most from this approach.
Step and Progression Pay Structures
A step pay structure uses a series of fixed, transparent pay increases over time or at defined milestones. Each step within a grade has a set salary, and employees move from one step to the next based on tenure, certifications, or other criteria.
Example: A public school district sets Teacher Step 1 at $50,000, Step 2 at $52,000, and Step 10 at $70,000, with automatic annual movement absent performance issues.
Best fit: Education, government agencies, and unionized workforces where predictability, transparency, and reduced managerial discretion are priorities. The trade-off is limited flexibility to respond quickly to market rates without revaluing the entire scale.
Skill- and Competency-Based Pay Structures
Skill-based pay structures tie pay levels to verified skills, certifications, or competency tiers rather than job titles alone. Progression happens when employees demonstrate new capabilities that add value.
Example: A manufacturing plant pays operators a base salary plus additional pay for each certified skill module—such as $1/hour extra per machine type mastered.
Best fit: Environments where cross-training increases operational flexibility and output, including manufacturing, logistics, and IT operations. These structures often require detailed competency models, which can be maintained using tools like SalaryCube’s Job Description Studio.
Hybrid and Multi-Structure Approaches
Most mid- to large-sized employers use a hybrid pay structure, combining multiple models across different populations. A 1,000-employee regional healthcare system might use step pay for nurses, market-based bands for physicians, and traditional graded structures for administrative staff.
Governance matters here: clear design principles ensure the overall system feels coherent and fair, even when different segments operate under different rules.
Once you select a structural model, the next challenge is actually designing and implementing pay ranges that work day-to-day.
Designing and Implementing a Pay Structure
Designing or overhauling a pay structure is a cross-functional project that typically runs 8–16 weeks and involves HR, finance, business leaders, and legal. This section provides a practical, step-by-step process U.S.-based HR and compensation teams can follow.
Step-by-Step Process to Build or Refresh Pay Structures
-
Define objectives and philosophy: Clarify whether you will lead, lag, or match the market, commit to internal equity principles, and set your transparency posture for job postings and internal communications.
-
Build or refine job architecture: Group roles into job families and levels using consistent criteria. Tools like SalaryCube’s Job Description Studio can streamline this work by generating standardized, benchmarkable job descriptions.
-
Gather and validate market data: Combine reputable salary surveys with real-time data sources like Bigfoot Live for current 2025 market rates. Real-time salary data addresses the lag inherent in annual survey cycles.
-
Set midpoints and range spreads: Convert market medians into pay midpoints and decide standard spreads by level—commonly 30% for entry-level roles and up to 50% for executives.
-
Model costs and equity impact: Run simulations of how the new structure affects payroll and pay equity. Platforms with unlimited reporting and easy exports (CSV, Excel) let you share scenarios with finance quickly.
-
Align policies and governance: Define rules for hiring, promotions, off-cycle adjustments, and exceptions management. Document who approves pay decisions outside standard guidelines.
-
Communicate and roll out: Plan manager training, internal FAQs, and employee-facing materials tailored to your transparency level. Clear pay structures build trust and reduce confusion.
Choosing Between Structures: A Simple Comparison
When selecting a structure, compare key criteria across your options:
-
Criterion: Flexibility
-
Traditional structure: Low–medium; tightly controlled pay grades
-
Broadband structures: High; wide discretion for managers
-
Market-based pay structure: Medium–high; flexible but grounded in data
-
Step pay structure: Low; changes require scale-wide adjustments
-
-
Criterion: Ease of budgeting
-
Traditional structure: Strong predictability
-
Broadband structures: More difficult; risk of range drift
-
Market-based pay structure: Good, if updated regularly
-
Step pay structure: Very strong; built-in pay progression costs
-
-
Criterion: Fit for fast-changing markets
-
Traditional structure: Slower to adapt
-
Broadband structures: Adapts quickly but needs guardrails
-
Market-based pay structure: Best when combined with real-time salary data
-
Step pay structure: Poorest fit without frequent renegotiation
-
Match your structure choice to your compensation strategy, industry volatility, and governance capacity. Organizations in competitive, fast-moving markets often benefit from market-based or hybrid approaches supported by real-time market data.
Keeping Pay Structures Current and Compliant
Pay structures are not “set and forget.” They require regular review against market changes, legislation, and internal equity—at minimum annually, and often more frequently in volatile markets. In the U.S., compliance considerations include pay transparency laws in states like California, New York, and Colorado, FLSA classification requirements, and equal pay regulations.
Using Real-Time Data to Maintain Market Alignment
Annual survey cycles alone are no longer sufficient. Rapid wage inflation and remote work competition have accelerated how quickly market rates shift. Ongoing access to real-time salary data—such as Bigfoot Live, updated daily—lets compensation teams spot drift early and adjust ranges mid-year.
Example: You notice software engineer offers in Atlanta running 10% above your current pay bands. With real-time data, you can adjust Grade 7 midpoints before you lose candidates or face compression. Unlimited reporting and exports make it easy to share updated bands with finance and HRIS teams quickly.
Handling Hybrid Roles, Remote Work, and Geo Differentials
Pricing hybrid roles—those that blend responsibilities such as Product Manager plus Data Analyst—is a growing challenge. Market-pricing tools can benchmark these roles as composites, combining data from multiple job matches to produce a defensible salary range.
Geographic differentials are equally complex. Common U.S. approaches include national bands with location multipliers versus fully regionalized structures.
Example: A national midpoint of $100,000 with a 1.20 multiplier for San Francisco and 0.90 for smaller markets produces local midpoints of $120,000 and $90,000 respectively. SalaryCube’s ability to segment data by metro and job scope helps defend these multipliers.
Aligning Pay Structures with Pay Equity and Transparency
Consistent pay structures are a core control for pay equity. When similar jobs are anchored to the same ranges and rules, deviations become visible and actionable. Compa-ratio distributions and pay equity analysis tools can identify groups paid systematically below midpoint, enabling targeted corrections.
As more states require posting ranges on job postings, poorly maintained structures become visible risks. Employers must be able to explain and defend their set salary ranges publicly. Clear pay structures grounded in current market data reduce legal exposure and build employee trust.
Even well-designed structures face common real-world challenges during rollout and maintenance.
Common Pay Structure Challenges and How to Solve Them
Even mature compensation teams encounter pushback, exceptions, and legacy issues when standardizing pay structures. The following subsections name specific, realistic problems and outline concrete solutions.
Legacy Pay Practices and Red-Circled Employees
Red-circled employees are those paid above the maximum salary for their grade—often the result of ad-hoc offers, acquisitions, or rapid market changes. Solutions include freezing base pay increases, converting future raises to lump-sum bonuses, or gradually expanding ranges using market data where justified.
Modeling scenarios with a compensation platform lets you quantify the cost and equity impact before making decisions.
Manager Resistance to New Pay Ranges
Managers may feel constrained by new ranges, especially when making offers or worried about losing top talent. Resistance often stems from a lack of understanding about how ranges were set.
Solutions include training that shows data sources and methodology, tools that let managers see market data directly, and clear exception processes. Platforms like SalaryCube can make the data transparent and build trust through demos and dashboards.
Pay Compression After Rapid Market Adjustments
Pay compression occurs when new hires come in at or above current employees’ pay levels due to market jumps in 2022–2025. This erodes morale and increases turnover risk among tenured employees.
Steps to address compression: identify compressed segments with compa-ratio analysis, prioritize adjustment budgets, and communicate rationale. Emphasize that this is a structural fix, not just individual salary increases. Updating ranges and explaining the reasoning helps employees understand that pay progression remains possible.
Conclusion and Next Steps
Pay structures are the foundation of compensation management—they organize base pay, define pay progression, and provide the framework for defensible, equitable pay decisions. The right pay structure depends on your organization’s strategy, workforce composition, and appetite for flexibility versus control. Maintaining competitive pay requires regular updates grounded in current market data, not annual surveys alone.
Here are concrete next steps:
-
Audit your current pay structure types and identify where you’re actually mixing and matching models.
-
Map all roles into a clean job family and level framework if you don’t already have one.
-
Benchmark 5–10 critical roles using real-time data to see if your ranges are still defensible.
-
Set a cadence—quarterly is often ideal—to review range competitiveness and pay equity indicators.
-
Book a demo with SalaryCube to see how real-time salary data and automated range building can simplify your pay structure work.
Related topics to explore next include pay band design, compa-ratio analysis, and pay equity audits—each of which builds on the pay structure decisions you make today.
Additional Resources for Pay Structure Design
For readers who want to go deeper, the following resources can support your pay structure work:
-
Salary Benchmarking Product: Detailed information on real-time pricing workflows and hybrid role benchmarking.
-
Bigfoot Live: Daily-updated U.S. salary data for ongoing market alignment.
-
Free Tools: Compa-ratio calculator, wage raise calculator, and other quick diagnostics.
-
Methodology and Resources: How SalaryCube sources and cleans its U.S. compensation data.
Use these tools to validate and stress-test your own pay structures before finalizing changes. If you want real-time, defensible salary data that HR and compensation teams can actually use to build better pay structures, book a demo with SalaryCube.