Salary bands provide a structured way to manage employee pay. They help organisations make more consistent salary decisions, improve transparency and maintain appropriate pay differences between roles and job levels.

However, creating salary bands is not simply a matter of applying a percentage around a market median.

A good salary structure needs to balance:

• External market data
• Internal job relativities
• Career progression
• Employee experience and capability
• Organisational affordability
• Pay equity
• Attraction and retention needs

This guide explains how to build salary bands in a practical and repeatable way.

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What Is a Salary Band?

A salary band is the salary range assigned to a job level, grade or group of similar roles.

Each salary band normally has three points:

• Minimum: The lower end of the salary range
• Midpoint: The organisation’s target salary for a fully competent employee
• Maximum: The upper end of the salary range

For example:

The minimum does not necessarily represent the lowest salary the organisation is legally allowed to pay. It represents the starting point of the organisation’s internal salary range for roles at that level.

Similarly, the maximum does not mean every employee should eventually be paid at that level. Employees near the maximum are generally highly experienced, consistently strong performers or individuals with valuable specialist capability.

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Step 1: Confirm Your Job Architecture

Before creating salary bands, you need a clear understanding of how jobs are structured across the organisation.

This does not require a complicated job evaluation exercise for every position. However, roles should be grouped according to their relative size and level of responsibility.

Consider factors such as:

• Scope of responsibility
• Decision-making authority
• Complexity
• Knowledge and experience required
• People leadership responsibility
• Financial accountability
• Impact on the organisation

Roles with broadly similar levels of responsibility should generally sit within the same salary grade.

For example:

The titles themselves are not the most important factor. Two roles with very different titles may sit at the same level if their scope and accountability are similar.

Practical tip

Do not build a separate salary band for every job title.

Salary structures become difficult to manage when every role has its own range. Where possible, group roles into a manageable number of job levels or grades.

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Step 2: Decide Your Market Position

The next step is to decide where the organisation wants to position itself against the external market.

Common market positions include:

• 25th percentile
• Market median
• 60th percentile
• 75th percentile

Many organisations use the market median as the starting point for salary-band midpoints.

However, the correct position will depend on the organisation’s remuneration strategy.

For example, an organisation may decide to:

• Target the market median for most corporate roles
• Pay above market for difficult-to-recruit technical roles
• Use a lower market position where non-financial benefits are strong
• Apply different market positions to different employee groups

Your chosen market position should reflect your ability to attract and retain employees while remaining financially sustainable.

Practical tip

Avoid choosing a market percentile simply because competitors appear to use it.

The organisation should be able to explain why its selected market position supports its workforce and business strategy.

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Step 3: Collect Reliable Market Data

Market data is normally used to establish or validate the midpoint of each salary band.

For each benchmark role, collect information such as:

• Market 25th percentile
• Market median
• Market 75th percentile
• Number of employees represented
• Number of organisations represented
• Data effective date
• Industry coverage
• Organisation size
• Location
• Job match quality

The quality of the job match is just as important as the salary figure.

A benchmark based on a similar job title but a different level of accountability may produce a misleading result.

For example, a Finance Manager in a small organisation may have a very different scope from a Finance Manager leading a large national team.

Review each benchmark for:

• Job scope
• Experience level
• Reporting line
• Team size
• Decision-making authority
• Geographic responsibility
• Revenue or budget accountability

Practical tip

Do not automatically accept every benchmark result.

Where market data is limited, consider using related roles, broader market trends and internal job relativities to support the final decision.

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Step 4: Establish Salary-Band Midpoints

The midpoint is the most important point in the salary band.

It usually represents the target salary for an employee who is fully competent and consistently performing the complete requirements of the role.

The midpoint may be based on:

• Market median
• Another selected market percentile
• Internal salary relationships
• A combination of market data and internal job evaluation

For example:

The proposed midpoint does not need to exactly match the market median.

It may be rounded or adjusted to maintain a logical progression between grades.

Practical tip

Avoid copying market medians directly into the salary structure without reviewing the overall pattern.

Market data can be irregular because it comes from different jobs, organisations and sample sizes. Your final salary structure should be smooth, logical and explainable.

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Step 5: Review Midpoint Progression

Midpoint progression measures the percentage difference between one salary-band midpoint and the next.

For example:

• Grade 3 midpoint: $90,000
• Grade 4 midpoint: $103,500

The midpoint progression is 15%.

A meaningful increase between grade midpoints helps recognise the additional responsibility and complexity associated with higher-level roles.

As a general guide, midpoint progression may range between approximately 8% and 20%, depending on the type of workforce and number of grades.

Lower-level structures may have smaller progression, while senior management levels may have larger increases.

Questions to ask

• Is there a meaningful salary increase between levels?
• Are any grades positioned too closely together?
• Are there unexplained jumps between grades?
• Does promotion provide appropriate salary progression?
• Are manager salaries sufficiently differentiated from employee salaries?

Practical tip

There is no single correct midpoint progression percentage.

Consistency matters, but the structure should also reflect genuine differences in job size.

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Step 6: Select the Salary Range Spread

The range spread is the difference between the minimum and maximum of a salary band.

For example:

Broader ranges provide more room for salary growth within a role. Narrower ranges provide tighter salary control.

Illustrative range spreads may include:

These figures should be treated as guidance rather than fixed rules.

The appropriate range spread depends on:

• Length of time employees remain in the role
• Variation in capability and experience
• Availability of promotion opportunities
• Market salary variation
• Complexity of the role
• Career structure

Practical tip

A wide salary band should not be used to place jobs of significantly different sizes into the same grade.

The job structure must remain clear even when salary ranges overlap.

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Step 7: Calculate the Minimum and Maximum

Once the midpoint and range spread have been selected, calculate the minimum and maximum for each grade.

One simple approach is to position the midpoint in the centre of the range.

For example, with a midpoint of $100,000 and a symmetrical range:

In practice, salary ranges are not always mathematically symmetrical because different calculation methods may be used.

What matters most is that the methodology is applied consistently across the structure.

Example salary structure

Before finalising the structure, review the minimum, midpoint and maximum values together rather than reviewing each grade in isolation.

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Step 8: Review Salary-Band Overlap

Salary bands will often overlap.

This is normal and allows an experienced employee in a lower-level role to earn more than a less experienced employee who has recently moved into a higher-level role.

For example:

In this example, the bands overlap between $85,000 and $100,000.

Some overlap is usually helpful. However, excessive overlap may reduce the distinction between grades.

Too little overlap may also create problems, particularly where employees receive a large salary increase simply because they are promoted.

Review whether:

• Employees can progress meaningfully within each band
• Promotion creates an appropriate salary opportunity
• Adjacent grades remain clearly differentiated
• Managers and direct reports are not positioned too closely
• Too many employees are clustered in overlapping sections

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Step 9: Map Employees to the New Salary Bands

Once the salary structure has been drafted, map each employee to their relevant grade and compare their current salary with the new range.

Each employee will normally fall into one of three categories:

• Below the salary-band minimum
• Within the salary band
• Above the salary-band maximum

This analysis helps identify immediate salary issues and longer-term remuneration risks.

For each employee, calculate:

• Current salary
• Grade
• Salary-band minimum
• Salary-band midpoint
• Salary-band maximum
• Compa-ratio
• Position in range
• Adjustment required to reach the minimum

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Step 10: Calculate Compa-Ratio

Compa-ratio shows how an employee’s salary compares with the salary-band midpoint.

It is calculated as:

Employee salary ÷ Salary-band midpoint

For example:

• Employee salary: $90,000
• Salary-band midpoint: $100,000
• Compa-ratio: 90%

A compa-ratio of:

• Below 80% may indicate the employee is significantly below the midpoint
• 80%–90% may be appropriate for an employee developing in the role
• 90%–110% generally represents broad alignment with the midpoint
• Above 110% may indicate an experienced employee or a potential salary-positioning issue

These categories should not be applied mechanically.

Employee capability, performance, experience and time in the role should also be considered.

Practical tip

A compa-ratio below 100% does not automatically mean an employee is underpaid.

The midpoint normally represents full proficiency, not the expected salary for every employee.

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Step 11: Calculate Position in Range

Position in range shows where an employee’s salary sits between the minimum and maximum.

It is calculated as:

Employee salary − Band minimum divided by Band maximum − Band minimum

For example:

• Band minimum: $80,000
• Band maximum: $120,000
• Employee salary: $90,000

The employee is positioned 25% through the salary range.

A practical interpretation may be:

Position in range should be used as a diagnostic measure, not as the sole basis for salary decisions.

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Step 12: Identify Employees Below the Minimum

Employees below the salary-band minimum normally require priority review.

However, before making an adjustment, confirm:

• The employee is mapped to the correct job level
• The role has not recently changed
• The salary data is accurate
• The employee is not working reduced hours
• The market benchmark is reliable
• There are no unusual employment arrangements

Once the data has been validated, calculate the cost of moving affected employees to the band minimum.

For example:

Where the total cost is significant, the organisation may need to prioritise or phase the adjustments.

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Step 13: Review Employees Above the Maximum

An employee above the salary-band maximum is not necessarily incorrectly paid.

Possible reasons include:

• Long tenure
• Historical salary arrangements
• Organisational restructure
• Role reduction
• Market premium
• Retention arrangement
• Incorrect job mapping
• Salary increases continuing after the employee reached the maximum

Each case should be reviewed individually.

Possible actions include:

• Maintaining the current salary
• Limiting future fixed-pay increases
• Providing lump-sum payments instead of base salary increases
• Reviewing the employee’s job level
• Considering whether the role has increased in scope
• Documenting the arrangement as an approved exception

Avoid reducing an employee’s salary purely to bring them inside the new range without first obtaining appropriate employment advice.

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Step 14: Check for Salary Compression

Salary compression occurs when there is little difference between the salaries of employees in jobs with different levels of responsibility.

It commonly appears between:

• Managers and direct reports
• New hires and long-serving employees
• Junior and senior professionals
• Adjacent job grades

For example, a manager earning $120,000 may have a direct report earning $117,000.

This is not always a problem. The direct report may have specialist skills or receive overtime or allowances.

However, it should be reviewed to determine whether the pay difference properly reflects the difference in responsibility.

Practical questions

• Are manager salaries appropriately differentiated?
• Are new employees being hired above experienced employees?
• Have market changes affected some roles more than others?
• Are employees receiving additional payments that distort the comparison?
• Does the job-level mapping remain accurate?

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Step 15: Test the Cost Before Implementation

A salary structure should not be approved without understanding its financial impact.

At a minimum, model the cost of:

Scenario 1: Move employees to the minimum

Calculate the cost of bringing every employee currently below range to the salary-band minimum.

Scenario 2: Improve market alignment

Calculate the cost of moving selected employees toward a target compa-ratio, such as 90%, 95% or 100%.

Scenario 3: Phase adjustments

Spread salary corrections over two or three annual remuneration-review cycles.

Scenario 4: Prioritise adjustments

Focus available budget on employees with the greatest need, such as:

• Employees below minimum
• Critical roles
• Retention risks
• Significant pay-equity gaps
• High performers
• Employees materially below market

Report the cost by:

• Business unit
• Grade
• Job family
• Gender
• Location
• Adjustment reason

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Step 16: Run a Salary Structure Health Check

Before implementing the new salary bands, review the complete structure for inconsistencies.

Check for:

• Missing or weak market benchmarks
• Inconsistent midpoint progression
• Excessive overlap
• Large gaps between grades
• Employees below minimum
• Employees above maximum
• Salary compression
• Pay-equity concerns
• Too many employees close to the maximum
• Grades containing jobs with materially different responsibilities
• Market data that is outdated
• Roles with low job-match confidence

The purpose of the health check is not to create a perfect salary structure.

It is to identify risks and ensure any exceptions are understood and documented.

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Step 17: Establish Salary Band Guidelines

Managers need clear guidance on how salaries should be positioned within each band.

A simple framework may look like this:

Lower part of the range

Typically used for employees who:

• Are new to the role
• Are developing required capability
• Have limited relevant experience
• Are still building proficiency

Around the midpoint

Typically used for employees who:

• Are fully competent in the role
• Consistently perform the complete responsibilities
• Have the expected experience and capability
• Deliver reliable performance

Upper part of the range

Typically used for employees who:

• Have extensive relevant experience
• Demonstrate advanced capability
• Consistently deliver strong performance
• Provide significant organisational value
• Have limited further salary growth available without promotion

Managers should not move employees through the range based only on tenure.

Salary progression should consider capability, contribution, performance, internal equity and affordability.

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Step 18: Document Exceptions

Not every employee will fit neatly within the salary structure.

Exceptions may be required for:

• Critical skills
• Temporary market shortages
• Retention arrangements
• Legacy employment conditions
• Acquisitions
• International transfers
• Specialist roles
• Employees whose salary is above the maximum

Create a simple exception process that records:

• Employee or role
• Reason for the exception
• Salary impact
• Approval authority
• Review date
• Planned future action

Without clear documentation, exceptions can gradually weaken the salary structure.

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Step 19: Communicate the Salary Structure

Organisations do not necessarily need to publish every salary-band value to every employee. However, managers should understand how the structure works.

Manager communication should cover:

• Why salary bands have been introduced
• How jobs are assigned to grades
• What the minimum, midpoint and maximum mean
• How employee salaries are positioned
• How salary increases are determined
• What happens when an employee is below or above range
• How promotions affect salary
• When the salary bands will be reviewed

Employees should receive a clear and consistent explanation of how salary decisions are made.

Transparency does not require promising automatic salary movement through the range.

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Step 20: Review Salary Bands Regularly

Salary structures should be reviewed at least annually.

An annual review may include:

• Updating salary bands for market movement
• Reviewing new benchmark data
• Checking employee positioning
• Identifying employees below or above range
• Reviewing salary compression
• Testing pay equity
• Confirming job-level changes
• Modelling the cost of adjustments

A more detailed structural review may be required every two to three years or following:

• Organisational restructuring
• Rapid workforce growth
• Acquisition or merger
• Introduction of new job families
• Significant market movement
• Changes to the remuneration strategy

Avoid automatically increasing every band by the same percentage without reviewing the underlying market.

Different job groups may move at different rates.

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Salary Band Builder Checklist

Before finalising your salary bands, confirm that:

• Jobs have been grouped into clear levels or grades
• Market data has been appropriately matched
• The organisation’s target market position is documented
• Midpoints reflect market data and internal relativities
• Midpoint progression is logical
• Range spreads are appropriate
• Salary-band overlap has been reviewed
• Employees have been mapped to the correct grades
• Employees below and above range have been identified
• Salary compression has been reviewed
• Pay-equity outcomes have been tested
• Implementation costs have been calculated
• Exceptions have been documented
• Manager guidelines have been prepared
• An annual review process has been established

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Final Thoughts

A salary band structure should make remuneration decisions easier, not more complicated.

The most effective structures are:

• Simple enough for managers to understand
• Detailed enough to support consistent decisions
• Aligned with reliable market data
• Based on clear internal job relativities
• Financially sustainable
• Regularly reviewed

The calculations are only one part of the process.

The real value comes from creating a consistent framework that helps the organisation explain why roles and employees are paid differently—and how future salary decisions will be made.