Salary Bands: What They Are and How to Build Them
What a salary band is, the min-mid-max formula, how to build bands from free market data, and how to fix an employee who is already outside the range.
Salary Bands
What they are, how to build them from free data, and how to fix the people already outside them
A salary band is a defined pay range for a role or level, made of a minimum, a midpoint, and a maximum. It is the answer to the question "what do we pay for this job," written down in advance, before a specific person is sitting across the table asking for a number.
That last clause is the whole point, and it is why I started using them. Without bands, every salary is a negotiation, and negotiations are not won by the best employee. They are won by the best negotiator. I have paid two people doing the same job meaningfully different amounts, and the only honest explanation was that one of them asked and the other did not.
This guide covers what a salary band actually is, the formulas nobody shows you, how to build defensible bands from free data when a paid survey subscription is out of reach, a full worked example for a small company, and what to do about the person who is already paid outside the band you just built.
What Is a Salary Band?
The words band, pay band, and compensation band all mean the same thing. There is no meaningful distinction, and anyone drawing one is selling you something.
Anatomy of a Band
The one thing to take from this diagram: you set the midpoint first. It is the market rate, it comes from data, and the minimum and maximum are derived from it.
Most people who build bands badly work the other way around. They pick a low number and a high number that feel right, and end up with bands whose widths vary wildly, with no logic behind them they could defend.
Band vs Grade vs Range vs Scale
The four terms in the heading, plus two close relatives, get used loosely. The loose usage is mostly harmless, but it is worth knowing what each one properly means.
| Term | What It Actually Means | Example |
|---|---|---|
| Pay grade | The label for a level. It is a name, not a number. | Level 3, Grade 7, Senior II |
| Salary band / pay band | The dollar range attached to a grade or level. Min, midpoint, max. | $62,500 to $87,500, midpoint $75,000 |
| Pay range | Often used to mean the range for one specific job, rather than a level covering several roles. | The range for 'Operations Manager' specifically |
| Pay scale / salary structure | The whole system: every level and its band, together. | Your complete set of four levels and four bands |
| Salary schedule | A published grid of grades and steps in which every cell names one fixed rate rather than a range. | A school district schedule, or the federal General Schedule |
| Broadbanding | Consolidating many narrow bands into a few very wide ones. | Replacing eight levels with three wide bands |
In practice you define your levels first, then attach a band to each. Level is the container, band is what is in it.
Types of Salary Structure
Your salary structure is every band taken together, and it comes in four common shapes. A small company almost always wants the traditional graded version to begin with, because it is the one that makes an individual pay decision explainable to the person it affects.
| Structure | How It Works | Where It Fits |
|---|---|---|
| Traditional graded | Several levels, each with a defined spread commonly in the 30% to 50% range, and a set midpoint progression between them. | The default for a small business. Enough structure to defend a decision, few enough levels to maintain. |
| Broadband | A handful of very wide bands, each covering what would otherwise be several levels. | Flat organizations with strong management judgment. Flexible, and it hands the pay decision back to the manager. |
| Market-based | Ranges built around market-priced midpoints, typically wider than traditional ones: WorldatWork’s 2019 survey describes them as typically having 30% to 80% spreads and 10% to 15% midpoint progressions. | The most common type in that survey, used by 55% of participants. It is only as current as its market data: three in four surveyed organizations that adjust ranges on a fixed schedule do it every year. |
| Step structure | Fixed steps inside each grade, advanced by tenure or a defined milestone rather than by judgment. | Public sector, unionized workplaces, and anywhere progression has to be mechanical and identical for everyone. |
Pay structure and pay scale mean the same thing as salary structure, and a pay grade scale is simply one whose levels carry grade labels rather than names. Which word you use matters far less than whether every role in the company sits in a level you can point to and explain out loud.
Why a Small Business Actually Needs Them
The standard answer is fairness and compliance. Both are true, but neither is what actually gets a founder to sit down and build bands. The four problems below are.
| Problem Without Bands | What Bands Do About It |
|---|---|
| Pay is decided by who negotiates hardest | The band decides the range before anyone negotiates. The candidate's leverage is capped by a number you set in advance, in a calm moment. |
| You cannot answer 'why does she earn more than me' | You can. She is further through the band, for reasons tied to scope and performance that you wrote down. This conversation is unwinnable without a structure. |
| Your job postings are non-compliant | Pay transparency laws increasingly require a range in the posting. A band is the range. Without one, you are inventing a number under pressure, which is exactly how you end up with a $50,000 to $200,000 posting that satisfies nobody. |
| Small pay gaps compound into indefensible ones | Merit increases are percentages, so an unexplained gap in year one is a larger unexplained gap in year five. Bands catch it while it is still small. |
The third problem is increasingly what forces the issue. The fourth is the one that quietly becomes a legal problem: under the Equal Pay Act, a pay difference between employees of opposite sexes doing substantially equal work has to rest on a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or some factor other than sex.
Proving one of those grounds is an affirmative defense you carry, which in plain terms means the burden of proving the reason sits with you as the employer. A documented band structure is one of the cleanest ways to meet it.
The Formulas
Most articles on this topic describe bands without ever showing you how to compute one. Here is the arithmetic for building a band and for placing one person inside it.
Two notes on the box. First, the minimum formula looks odd until you see what it is doing. Because the spread is measured off the minimum, dividing the midpoint by (1 + spread ÷ 2) is exactly what lands the midpoint halfway between the min and max. Check it on the example: $62,500 and $87,500 average to $75,000.
Second, compa-ratio is the number to actually manage with day to day. It puts every role in the company on the same scale: a 0.85 means the same thing whether the band is $50,000 or $200,000.
Getting Market Data Without a Survey Subscription
Every article on salary bands assumes you have a paid compensation survey sitting on the shelf. At a small company you do not, and you are not going to, but you do not need one to build a first set of defensible bands.
The BLS Occupational Employment and Wage Statistics program, run by the Bureau of Labor Statistics, is the workhorse here. It gives you median and percentile wages by occupation and by metropolitan area, it is free, and it is federal government data. When someone asks how you set the number, you have an answer that does not sound like a guess.
The program covers roughly 830 occupations, and the current vintage is May 2025. Check which vintage you are reading before you build a band on it, because a wage figure two releases old is a band that quietly stopped matching the market.
Reading Salary Percentiles
A salary percentile is the wage below which a given share of workers in an occupation are paid. The BLS series publishes the 10th, 25th, 50th, 75th, and 90th percentile for each occupation alongside the mean, and the 50th percentile is the median: the middle of the market, and the usual starting point for a midpoint.
| Percentile | What It Tells You | How to Use It |
|---|---|---|
| 10th and 25th | The bottom of the market for that occupation: new entrants, smaller employers, cheaper geographies. | A check on your band minimum. If your minimum sits below the 25th, you are recruiting against the bottom of the market. |
| 50th (the median) | The middle. Half the workers in the occupation earn less than this and half earn more. | The default anchor for a midpoint when you have no strong view about where you want to sit. |
| 75th | Well above the middle: experienced people, larger employers, expensive metros. | Where you anchor the midpoint if you have decided to pay above market for scarce skills. |
| 90th | The top of the published range for the occupation. | Usually a bigger job wearing the same title. Treat it as a ceiling reference rather than a target. |
Which percentile you build around is a business decision rather than a technical one. It is your market position, and it belongs in a written compensation philosophy. Whatever you pick, apply it consistently across every band, or the structure quietly pays some roles better than others for no stated reason.
One caveat on what you are actually comparing. A salary band is a wage range, not a total compensation figure. According to the BLS Employer Costs for Employee Compensation release (June 2026), benefits are 30.0 percent of total compensation for private industry workers, so the loaded cost of a person sitting at your $75,000 midpoint is meaningfully higher than $75,000. Build the band on wages, but budget on the loaded figure.
How to Build Your First Bands
The seven steps run in this order: levels, midpoints from market data, the band math, then your people, and finally a written record of how you got there.
That last step is the one everybody skips, and it is the one the whole structure rests on. A band with no recorded reasoning is a number somebody made up, which is exactly the situation you built the bands to get out of. Fill this in while the decisions are fresh.
A Worked Example
Every minimum and maximum in that table comes straight out of the formula, and nothing in it is picked by feel. If you disagree with a midpoint, that is a data argument you can have, which is exactly the property you want: the structure can be argued on its merits rather than on who feels most strongly.
Here is the same exercise as a blank workbook. The first sheet builds the bands, the second plots your existing people against them, and the third is where every figure you found goes, with the source next to it, so that a year from now you can see which numbers were soft.
| A | B | C | D | E | F | G | H | I | |
|---|---|---|---|---|---|---|---|---|---|
| 1 | Level | Roles in this level | Midpoint from market data | Spread | Minimum = Midpoint / (1 + Spread/2) | Maximum = Minimum x (1 + Spread) | Rounded minimum | Rounded maximum | Midpoint progression from level below |
| 2 | Level 1 | n/a | |||||||
| 3 | Level 2 | ||||||||
| 4 | Level 3 | ||||||||
| 5 | Level 4 | ||||||||
| 6 | |||||||||
| 7 |
Salary Range Examples for a Job Posting
A band is the internal range. A posted range is what a candidate reads, and the two are not always identical: most small employers publish the band rounded off, or the slice of it where they honestly expect to hire. Here are the three example roles again, converted into what goes in the ad.
| Role | Band from the Example | Range as Posted | Why It Differs |
|---|---|---|---|
| Operations Associate | $52,174 to $67,826 | $52,000 to $68,000 | Rounded and published whole. A 30 percent spread is narrow enough that the full band still reads as a real range. |
| Operations Manager | $62,500 to $87,500 | $62,500 to $80,000 | The top of the band belongs to someone already excelling in the job, so it is not on the table for a new hire. |
| Senior Engineer | $84,000 to $126,000 | $90,000 to $120,000 | A 50 percent spread published end to end invites the complaint that the range means nothing. Trim it to where a new hire would land. |
Whatever you post has to be a range you would honor. Advertising a ceiling you have never paid, or opening below your own minimum the moment a candidate hesitates, is the behavior that posting rules were written to stop. Record which slice of the band you published, and why, next to the band itself.
Choosing Spread and Midpoint Progression
Two design decisions define the shape of your whole structure: how wide each band is, and how far apart the bands sit from one level to the next.
Spread: How Wide Each Band Is
Spread is how wide a band runs from minimum to maximum, and it should widen as roles get more senior. For an outside reference, WorldatWork's 2019 survey of salary structure practices found that organizations with traditional structures averaged a 36.5 percent spread on their narrowest range and 51.3 percent on their widest, while market-based structures ran wider, at 45.7 and 65.3 percent.
The ladder below is a starting point, not a survey benchmark.
| Level | Starting Spread | Why |
|---|---|---|
| Entry level | 25% to 35% | Less room for individual variation. An entry-level person is either doing the job or learning it, and the market price band is narrow. |
| Mid level / professional | 35% to 45% | Real variation in capability and market price emerges. The band has to hold both a competent person and a strong one. |
| Senior / lead | 45% to 55% | The gap between an adequate and an outstanding senior person is enormous in both output and market price. A narrow band cannot hold both. |
| Executive | 50% to 60%+ | Widest, and increasingly individual. At this level the band is more of a guardrail than a grid. |
Midpoint Progression: The Gap Between Levels
Midpoint progression is how much each level's midpoint exceeds the one below it. Common practice is 10 to 20 percent: in the same WorldatWork survey, nearly two-thirds of organizations with market-based structures reported midpoint progressions of 10 to 19 percent.
At 15 percent progression starting from a $55,000 midpoint, your four levels land at roughly $55,000, $63,250, $72,750, and $83,650. Too small a gap and a promotion is not worth taking. Too large and you cannot afford to promote anyone, so you do not, and they leave.
When Someone Is Already Outside the Band
You will build your first bands and immediately discover that two or three people do not fit in them. This is not a failure of the exercise. It is the exercise working.
Below the Minimum (Green-Circled)
Someone paid below the band minimum is underpaid relative to your own stated market position. This is a market adjustment, not a merit increase, and confusing the two is a mistake I have watched a lot of founders make.
A 3 percent merit increase does not close a 15 percent gap. It closes a fifth of it, it makes the person feel rewarded, and it leaves them underpaid, which makes the eventual discovery worse rather than better. Fix the base first, with a market adjustment, and run merit on top of the corrected number.
Above the Maximum (Red-Circled)
Someone paid above the band maximum has three possible resolutions.
| Option | What You Do | When It Is Right |
|---|---|---|
| Freeze and let the band catch up | Hold their base pay while annual band adjustments raise the range toward them. Give any increase as a one-time bonus rather than base pay. | The person is genuinely at the top of this role's value and there is no bigger role for them. Resolves in two to four years. |
| Promote them into the next band | Their scope has actually outgrown the role and the band is telling you so. | Very common. The red circle is frequently the structure noticing a promotion that was overdue. |
| Fix the band | Rebuild the midpoint from data. If the person is well-regarded and the market says they are paid correctly, your band is wrong. | Check this before you conclude the person is overpaid. A single red-circled person might be an outlier. Three of them means your data was bad. |
Bands and Pay Transparency Law
Pay transparency law is the reason a lot of small businesses are reading about salary bands for the first time. You cannot post a good-faith salary range if you have never decided what your range is.
Posting rules have two practical consequences for how you build and publish bands.
Remote postings can trigger multiple states. Several states apply their posting rules to remote roles that could be performed in the state, so one remote job ad can pull in several states' requirements at once. The safe approach for a multi-state or remote-first employer is to comply with the strictest applicable rule.
A good-faith range means a real range. Posting $50,000 to $200,000 to technically satisfy a law is not a good-faith estimate, and several states say so explicitly. A band gives you a range you can actually defend, because it was derived from data before anyone asked.
Broadbanding and Government Pay Bands
Two neighboring ideas often get mixed up with ordinary salary bands, and neither works quite like the bands described so far.
Broadbanding is the practice of collapsing many narrow bands into a few very wide ones. Instead of eight levels each with a 30 percent spread, you might have three bands each with a 100 percent spread. It buys flexibility and it costs structure.
Broadbanding tends to work in organizations with strong management judgment and to fail in organizations without it, because a very wide band means the manager, not the structure, is deciding pay. For a small business it is usually the wrong starting point: you want more structure at the beginning, not less.
Government pay bands are a different animal. The US federal General Schedule (GS) runs 15 grades with 10 steps inside each, rather than the min-mid-max bands described here, and some federal agencies have adopted broader pay banding systems that consolidate GS grades. If you landed here looking for how the GS scale works, that is a separate system, and none of the formulas above apply to it.
A salary schedule is that same idea drawn as a grid. Each grade gets a row, each step gets a column, and the cell where they meet is one exact rate rather than a range. Public employers and unionized workplaces publish them because progression has to be mechanical and identical for everyone holding the same grade.
A private employer can still borrow the format. For hourly roles where the argument is always about who got moved up and when, a schedule with a stated rate at each step, and a written rule for reaching the next one, settles the question before it is asked. You lose the judgment a band gives you, which is the trade.
Should You Share Bands With Employees?
The honest answer is that you are going to, whether you decide to or not.
If you post a range in a job ad, your current employees will see it, and they will compare it to their own salary. If your bands are not published internally, they will be reconstructed from that job posting, in the least favorable possible interpretation, in a conversation you are not part of.
The law also protects that conversation. Under the National Labor Relations Act, employees have a protected right to discuss their pay with one another. A policy prohibiting it is unlawful, and trying to enforce one is a bad idea for reasons that go beyond the legal exposure.
Section 7 of the Act gives employees the right to engage in concerted activities for mutual aid or protection, which in plain terms means acting together on pay and working conditions. Comparing wages with a colleague sits squarely inside that.
So the real choice is not whether your pay structure becomes known. It is whether it becomes known as something you built deliberately and can explain, or as something inferred from a job ad. I would rather be explaining a structure than defending an inference.
Where this gets operationally messy at a small company is that the band lives in a spreadsheet, the employee's actual salary lives in payroll, the promotion that moved them between bands lives in someone's email, and nobody can produce a compa-ratio without an hour of assembly. The promotion is the piece FirstHR takes out of email: each employee profile keeps the job title, department and manager, a History tab logs every position change with who made it and when, and the signed offer letter is filed with the rest of their documents. The band worksheet and the pay itself stay with your spreadsheet and your payroll provider, while the dated record of each job change sits where the rest of the employee record lives.
Common Salary Band Mistakes
These are the eight salary band mistakes worth checking your own structure against, each with its fix.
| Mistake | What Happens | The Fix |
|---|---|---|
| Building the band before setting the midpoint | You pick a low and a high number that feel right, and end up with bands of wildly inconsistent width and no defensible logic. | Set the midpoint from market data first. Derive min and max from a chosen spread. The midpoint is the anchor. |
| Creating a level for every person | You have not built a structure, you have documented the status quo, and you cannot promote anyone into anything. | Three or four levels is plenty for a small company. Group by scope and impact, not by title or tenure. |
| Using a merit increase to fix a below-minimum salary | A 3% merit increase does not close a 15% gap. The person stays underpaid and now also feels rewarded. | Market adjustment first, to bring them to the band minimum. Then run merit on the corrected base. Different instruments. |
| Assuming you need a paid compensation survey | You conclude you cannot afford bands and do nothing, which is strictly worse than imperfect bands. | BLS wage data plus 10 to 15 live job postings in your market. An afternoon, no cost, and defensible. |
| Cutting pay to force someone into a band | Legally fraught and a guaranteed resignation. You have solved a spreadsheet problem by creating a hiring problem. | Freeze and let the band catch up, promote, or fix the band. There is no fourth option. |
| Same spread at every level | Your senior band is too narrow to hold both an adequate and an outstanding senior person, so you break it constantly. | Widen with seniority. Roughly 30% entry, 40% mid, 50% senior. |
| Setting midpoint progression too small | A promotion nets less than a good merit increase, which makes promotion a demotion in cash terms. | 10% to 20% progression between levels. Test it: is the promotion raise clearly bigger than the merit raise? |
| Never updating the bands | The market moves, your bands do not, and you start losing candidates at offer stage without understanding why. | Rebuild midpoints from fresh data annually. Check who has fallen below the new minimum. |
A band is only as good as the midpoint under it and the notes behind it. Set the midpoint from data, write down how you got there, and calendar next year's rebuild before you close the spreadsheet.
Frequently Asked Questions
What is a salary band?
A salary band is the pay range a company sets for a role or job level, marked by three points: a minimum, a midpoint, and a maximum. Together they fix the lowest and highest amount you are prepared to pay for that work. The minimum is where someone who is new to the role starts. The midpoint is the market rate for a person who is fully competent in the job. The maximum is the most you will pay someone who is excelling in it. Companies use salary bands so that pay follows a consistent, market-based rule they can defend, instead of rewarding whoever negotiates hardest.
What is a pay band?
A pay band is the same thing as a salary band: a defined range with a minimum, midpoint, and maximum assigned to a role or level. The terms are used interchangeably, along with compensation band. You will also encounter the term in a government context, where the US federal General Schedule uses pay grades and steps, and some agencies use broader pay banding systems that consolidate several grades into a single wide band.
What is the difference between a pay band and a pay grade?
A pay grade is the name given to a level, such as Level 3 or Grade 7, and the pay band is the dollar range that goes with it. The usual order is to settle your levels first and then give each of them a band. A pay range tends to mean the range for one particular job, whereas a salary band is broader and can span several similar roles that sit at the same level. The pay scale is the complete structure: every level and its band, viewed together as one system.
How do you calculate a salary band?
Begin with the midpoint, which comes from market data, and work outward using the spread you chose for that level. The minimum is the midpoint divided by (1 plus spread divided by 2), and the maximum is that minimum multiplied by (1 plus spread). A $75,000 midpoint with a 40 percent spread, for example, produces a minimum of $62,500 and a maximum of $87,500. Avoid the shortcut of picking a number and adding or subtracting a round amount on either side of it, because the spread then comes out different for every role and the structure stops being consistent.
What is a typical salary band spread?
A practical salary band spread for a small company runs from roughly 30 percent for entry-level roles, through about 40 percent for mid-level and professional roles, to 50 percent or more for senior and executive roles. Spread is the width of the band: the maximum minus the minimum, divided by the minimum. Survey data marks out the wider territory. In a 2019 WorldatWork study of salary structures, organizations with traditional structures reported an average spread of 36.5 percent on their tightest range and 51.3 percent on their broadest, while market-based structures averaged 45.7 and 65.3 percent. Bands get wider with seniority because the difference in results and market price between an adequate performer and an outstanding one grows as roles become more senior. Among the organizations in that study with market-based structures, nearly two-thirds reported midpoints of neighboring levels sitting 10 to 19 percent apart.
How do you build salary bands without a compensation survey?
Combine a few free sources and look for the point where they agree. Start with the Bureau of Labor Statistics Occupational Employment and Wage Statistics program: it is federal data, it reports median and percentile pay by occupation and by metro area, and it holds up when someone asks where your number came from. Next, collect 10 to 15 current job ads for the same role near you, which is easier now that many states make employers post a range. Use a self-reported salary site only as a sanity check. Where the sources line up is your midpoint, and the whole exercise takes an afternoon and no budget.
What is compa-ratio?
Compa-ratio is an employee's actual salary divided by the midpoint of their band. A compa-ratio of 1.0 means they are paid exactly the market rate for a fully competent person in that role. Below 0.90 usually signals someone new to the role or someone who is underpaid. Above 1.10 signals a strong performer approaching the top of their band. It is the single most useful number for spotting pay problems, because it normalizes across roles: a 0.85 is a 0.85 whether the band is $50,000 or $200,000.
What do you do if an employee is paid above the band maximum?
This is called being red-circled, and you have three options. First, freeze their base pay and let annual band adjustments gradually bring the band up to them, which resolves it over a few years. Second, promote them into a higher band if their actual scope justifies it. Third, verify your band is correct, because sometimes the red circle is telling you the band is too low rather than the person too expensive. What you should not do is cut their pay, which is legally risky and practically guarantees you lose them.
Do I have to share salary bands with employees?
No federal law requires you to publish internal bands to your staff, but pay transparency law is moving fast at the state level and increasingly requires a range in job postings, which means candidates and your own employees will see it anyway. Note also that the National Labor Relations Act protects employees' right to discuss their pay with each other, so a policy forbidding it is unlawful. The practical position is that your bands will become known. It is better to publish them deliberately than to have them reconstructed from a job posting.
How often should salary bands be updated?
Review them annually at minimum. Market rates move, and a band that was accurate two years ago quietly becomes a recruiting problem: you keep losing candidates at the offer stage and cannot work out why. The usual cause is that the market moved and your band did not. Rebuild the midpoints from fresh data once a year, and check whether anyone has drifted below the new minimum, because that group needs an adjustment rather than a merit increase.