Salary Structure Types Explained: How to Build and Maintain Pay Ranges

A salary structure is the framework an organization uses to organize jobs into pay grades and assign each grade a minimum, midpoint, and maximum pay rate. For HR and compensation professionals, the salary structure is the foundation for every pay decision -- hiring offers, merit increases, promotions, and market adjustments all reference it.

This guide is written for compensation teams at mid-market organizations (200 to 5,000 employees). It covers each structure type in depth -- when to use it, how to build it, and the tradeoffs involved -- along with the technical concepts (range spread, midpoint progression, compa-ratio) that make structures work in practice.

What a Salary Structure Actually Does

A salary structure translates an organization's compensation philosophy into operational rules. It answers four questions:

1. How are jobs grouped? -- Into grades, bands, or levels based on job evaluation, market data, or both
2. What is the pay range for each group? -- A minimum, midpoint, and maximum for each grade
3. Where should an individual be paid within the range? -- Based on experience, performance, and tenure
4. How do ranges relate to each other? -- Through midpoint progression between adjacent grades

Without a structure, every pay decision is a negotiation. With one, HR teams can make consistent offers, allocate merit budgets effectively, and identify compression or equity issues before they become retention problems.

For a foundational overview of pay structures, see the SalaryCube Academy pay structures guide.

The Four Primary Salary Structure Types

Traditional Step Structures

Definition: Traditional step structures assign a fixed set of pay steps within each grade. Employees advance from one step to the next based on tenure, certifications, or other predetermined criteria.

How it works: Each grade contains a defined number of steps (commonly 5 to 12), and each step represents a specific dollar amount. Progression is predictable: an employee hired at Step 1 moves to Step 2 after a specified period, regardless of individual performance differentiation.

When to use it:

• Public sector organizations, education, healthcare, and unionized environments where pay predictability and transparency are priorities
• Organizations with collectively bargained pay scales
• Roles where tenure and credentialing matter more than individual performance variation

Pros:

• High transparency -- employees know exactly what they will earn at each step
• Easy to administer and budget
• Reduces bias in pay decisions because progression is rules-based
• Well-suited to union environments

Cons:

• Limited ability to reward exceptional performance
• Can create retention problems for high performers who feel progression is too slow
• Rigid structure makes it difficult to respond to sudden market shifts
• Step increases continue even when an employee's performance is merely adequate

How to build it: Define the number of grades based on your job evaluation results. For each grade, set a minimum and maximum, then divide the range into equal steps. The step increment is typically 2-4% of the prior step. Review steps annually against market data and adjust the entire scale if the structure has fallen behind.

Broadband Structures

Definition: Broadband structures consolidate many narrow pay grades into a smaller number of wide bands. A traditional structure with 15-20 grades might become a broadband structure with 4-6 bands.

How it works: Each band has a substantially wider range spread (often 80-150%) compared to traditional grades (typically 40-60%). This width gives managers significant discretion to position employees within the band based on skills, performance, and market value.

When to use it:

• Organizations with flat hierarchies and cross-functional career paths
• Fast-changing industries where roles evolve rapidly
• Companies that want to reduce the administrative overhead of maintaining many narrow grades
• Organizations emphasizing lateral development and skill acquisition over vertical promotion

Pros:

• Flexibility to reward skill growth without requiring a formal promotion
• Fewer grades to maintain and update
• Supports lateral career movement across functions
• Reduces "title inflation" driven by employees seeking grade changes for pay increases

Cons:

• Wide bands make it harder to control pay consistency; two employees in the same band may have very different salaries
• Managers need more compensation training to make sound positioning decisions
• Budget forecasting is more difficult because the range of possible outcomes per employee is wider
• Can mask pay equity issues if not carefully monitored

How to build it: Start by mapping your current grades into logical career levels (e.g., individual contributor, senior individual contributor, manager, director, executive). Merge 3-4 traditional grades into each band. Set the band minimum and maximum based on the lowest and highest market rates across the jobs in that band. Establish "zones" or "reference points" within each band to provide guidance to managers without reverting to rigid steps.

Market-Based Structures

Definition: Market-based structures set pay ranges directly from external compensation data rather than from internal job evaluation point systems. Each grade's midpoint is anchored to a market percentile target (e.g., the 50th or 60th percentile).

How it works: The compensation team matches internal jobs to benchmark surveys or real-time data sources, determines the market rate for each role, and groups jobs with similar market values into grades. Ranges are built around the market midpoint using a consistent range spread.

When to use it:

• Organizations competing for talent in competitive, market-driven industries (technology, life sciences, finance)
• Companies where external equity (matching market rates) is a higher priority than internal equity (consistent internal job evaluation)
• Mid-market firms that do not have the resources for elaborate job evaluation systems but have access to quality market data

Pros:

• Pay ranges directly reflect what the market pays, making offers and retention decisions more defensible
• Easier to explain to managers and executives ("our midpoint is the 50th percentile of market")
• Can be refreshed as frequently as the data source updates -- daily with real-time platforms, annually with traditional surveys
• Aligns naturally with pay transparency requirements because ranges are data-driven

Cons:

• Requires reliable, role-specific market data; poor data leads to poor structures
• Jobs without clear market matches (unique or hybrid roles) are difficult to price
• Heavy reliance on external data can create internal equity inconsistencies if similar internal roles are priced differently by the market
• Requires more frequent maintenance because market rates shift continuously

How to build it: Match each job to benchmark data using salary benchmarking tools. Determine your target market percentile (e.g., P50 for base pay). Group jobs with similar market values into grades. Set the midpoint of each grade at the target percentile, then apply a consistent range spread (typically 40-50% for professional roles) to calculate minimums and maximums. Tools like SalaryCube's Range Builder create defensible ranges from real-time market data and allow one-click refreshes when market conditions change.

Hybrid Structures

Definition: Hybrid structures combine elements of two or more approaches. The most common hybrid pairs market-based midpoints with broadband-style flexibility for certain job families while maintaining traditional step structures for others.

How it works: The organization uses market data to set the midpoints and range parameters (market-based element) but may use broader bands for functions like technology or sales where role scope varies widely, while keeping tighter traditional grades for functions like operations or administration where roles are more standardized.

When to use it:

• Organizations with diverse job families that have different market dynamics
• Companies transitioning from a traditional structure to a more market-driven approach
• Mid-market firms that need the rigor of market data but the flexibility to handle non-standard roles

Pros:

• Tailors the structure to the actual needs of each job family
• Balances internal equity with external competitiveness
• Allows gradual migration from one structure type to another
• Accommodates specialized roles (e.g., hybrid roles that blend multiple job functions)

Cons:

• More complex to administer -- different rules for different parts of the organization
• Requires clear documentation to prevent confusion
• Can be perceived as inconsistent if the rationale for different treatments is not well communicated

How to build it: Start with a market-based structure as the default. Identify job families that need broader bands (typically roles with wide scope variation or rapid market movement) and those that benefit from tighter grades (stable, well-defined roles). Apply the appropriate range parameters to each group. Document the rationale for each job family's treatment in the structure guidelines.

Key Technical Concepts

Understanding these concepts is essential for building and maintaining any salary structure.

Range Spread

Range spread is the percentage difference between the minimum and maximum of a pay range. It is calculated as:

Range Spread = (Maximum - Minimum) / Minimum x 100

Typical range spreads vary by job level:

Wider spreads give more room for pay progression within a grade but make it harder to control costs and consistency. Narrower spreads are easier to manage but may force more frequent promotions or reclassifications to provide meaningful pay growth.

Midpoint Progression

Midpoint progression (also called midpoint differential) is the percentage difference between the midpoints of adjacent grades. It signals how much of a pay increase is associated with moving up one level.

Midpoint Progression = (Higher Midpoint - Lower Midpoint) / Lower Midpoint x 100

Typical midpoint progressions range from 8% to 15% between adjacent grades. If progression is too small (under 8%), promotions do not feel financially meaningful. If it is too large (over 20%), there may be gaps between the maximum of one grade and the minimum of the next, creating "dead zones" where no employee is paid.

Most structures maintain some overlap between adjacent grades so that a high-performing employee at the top of one grade earns more than a new entrant in the grade above. This overlap is intentional and expected.

Compa-Ratio

Compa-ratio measures where an individual employee's pay sits relative to the midpoint of their range. It is the single most useful metric for managing a pay structure.

Compa-Ratio = Employee's Salary / Range Midpoint

Compa-ratio is the primary input to the merit matrix, which determines annual increase percentages. Employees with lower compa-ratios typically receive larger increases to move them toward midpoint, while employees above midpoint receive smaller increases. For a deeper explanation, see the compa-ratio guide.

Understanding what the 75th percentile means in salary data is also critical when setting range parameters, since organizations often peg their midpoint to a specific market percentile.

How to Build a Salary Structure: Step by Step

Regardless of which structure type you choose, the construction process follows a consistent sequence.

Step 1: Define compensation philosophy. Decide your target market position (e.g., 50th percentile for base, 60th for total compensation), which jobs you will lead the market on, and how much weight to give internal versus external equity.

Step 2: Gather market data. Match internal jobs to external benchmarks. SalaryCube's DataDive Pro covers 17,000+ job titles organized by job family and level, with filters for geography, industry, revenue, and headcount. Traditional salary surveys are another source, though they typically update annually rather than in real time.

Step 3: Evaluate and group jobs. Use market data, internal job evaluation, or both to group jobs with similar value into grades. Most mid-market organizations use 10-15 grades for non-executive roles.

Step 4: Set range parameters. For each grade, determine the midpoint (from market data), range spread (by job level convention), minimum, and maximum. Verify that midpoint progression between adjacent grades is 8-15%.

Step 5: Slot employees into the structure. Calculate each employee's compa-ratio. Identify employees below minimum (immediate attention needed), below midpoint (candidates for merit increases or market adjustments), and above maximum (shift to variable pay or reclassify).

Step 6: Model the cost. Before implementing, model the cost to bring all below-minimum employees to at least the range minimum. This is the non-negotiable cost of implementing the new structure. Additional costs to move employees toward midpoint can be spread over multiple merit cycles.

Step 7: Communicate and implement. Brief managers on the structure, how ranges were set, and how to use compa-ratio in pay conversations. In organizations subject to pay transparency laws, published ranges should align with the structure.

Maintaining Structures Over Time

A salary structure loses value the moment it stops reflecting the market. Maintenance is not optional.

Annual Range Refresh

At minimum, ranges should be refreshed annually using current market data. The refresh process involves:

1. Pulling updated benchmark data for all matched jobs
2. Recalculating grade midpoints based on new market rates
3. Adjusting minimums and maximums using the same range spread formulas
4. Identifying employees who have fallen below the new minimums
5. Budgeting for any structural adjustments needed

Traditional salary surveys update once per year, which means the data is already aging by the time ranges are refreshed. Real-time compensation platforms update daily, giving HR teams a current view of market movement. SalaryCube's Range Builder allows one-click range refreshes from the latest market data, with full version history and audit trails.

Monitoring for Pay Compression

Pay compression occurs when new hires are offered salaries close to or above what tenured employees in the same role earn. It is the most common structural problem in fast-moving labor markets.

Signs of compression include:

• Compa-ratios for new hires are higher than for employees with 3+ years in role
• The gap between midpoint and minimum has narrowed because starting salaries have risen faster than internal increases
• Manager escalation requests for "retention adjustments" are increasing

The fix involves both structure maintenance (refreshing ranges) and targeted merit or equity adjustments for compressed employees. For more detail, see the guide on pay compression.

Handling Range Overlap and Grade Creep

Over time, organizations tend to create new grades to solve individual pay problems rather than maintaining the existing structure. This "grade creep" inflates the structure and makes it harder to administer.

During the annual review, audit the structure for:

• Grades with very few incumbents (candidates for consolidation)
• Excessive overlap between adjacent grades (more than 50% overlap may indicate the grades are not meaningfully different)
• Midpoint progressions that have become inconsistent as individual grades were adjusted ad hoc

Integrating with Salary Banding and Pay Transparency

Many states and localities now require salary range disclosure in job postings or upon request. The salary structure is the source of truth for these ranges. If the structure is outdated, posted ranges will either be uncompetitive (deterring applicants) or misaligned with what the organization actually pays (creating legal risk).

Organizations using a well-maintained structure can post ranges with confidence because every range is backed by documented market data and a consistent methodology. The salary banding guide provides additional context on how bands relate to pay transparency compliance.

Choosing the Right Structure for Your Organization

The decision depends on a few practical factors:

For most mid-market organizations competing for professional and technical talent, a market-based or hybrid structure provides the best balance of competitiveness, defensibility, and administrative feasibility. The key enabler is access to reliable, current market data.

Key Takeaways

A salary structure is not a one-time project -- it is an ongoing management system. The structure defines pay grades and ranges, the merit matrix governs movement within those ranges, and regular maintenance keeps the whole system aligned with market reality. HR teams that invest in a clear structure, ground it in current data, and refresh it at least annually will make more consistent pay decisions, reduce compression risk, and have defensible answers when employees, managers, or regulators ask how pay is determined.

Organizations ready to benchmark their current pay data against the market can start with Open Benchmark, which provides matched benchmarking results from anonymized compensation data at no cost.