How to Build a Salary Structure from Scratch

What a Salary Structure Is — and Is Not

A salary structure is a hierarchy of salary grades, each with a defined minimum, midpoint, and maximum pay range. When a role is placed in Grade 4, everyone immediately knows what range applies — without negotiating from scratch for every hire or promotion. Structures create internal equity by ensuring comparable roles receive comparable treatment, external competitiveness by anchoring ranges to market data, and governance by defining what falls within policy.

A salary structure is not a guarantee that everyone is paid at the midpoint. It is not a ceiling preventing exceptional pay for exceptional performance. It is a governance tool that makes every pay decision faster, more consistent, and more defensible — and that makes auditing for equity far more straightforward.

Step 1: Evaluate the Jobs and Step 2: Gather Market Data

Before building ranges, understand the relative size of every role through job evaluation — assessing each on knowledge required, complexity, accountability, and impact. Roles with similar scores are grouped into the same grade regardless of function or title. This internal hierarchy becomes the foundation of the structure.

Once grades are established, anchor them to the external market. Collect salary survey data for benchmark roles at each grade level, match by role content rather than title, and identify the market P50 for each. Plot the data points with grade on the x-axis and salary on the y-axis. The regression line through these points — your pay policy line — shows the mathematical relationship between role size and target pay at your chosen market position.

Step 3: Design Grades and Ranges

Using your pay policy line, set midpoints for each grade with a consistent 15 to 20 percent progression between adjacent grades. Build ranges around each midpoint: 40 to 50 percent spread for junior grades, 60 to 70 percent for senior grades. The minimum typically sits at 80 percent of midpoint and the maximum at 120 percent for a 50 percent spread.

Ensure adjacent grades overlap appropriately — where the maximum of Grade 3 slightly exceeds the minimum of Grade 4. This means an experienced Grade 3 can legitimately earn more than a new Grade 4, reflecting that within-grade experience and performance are genuine differentiators.

Step 4: Address Outliers and Build Governance

Place every role into its grade. Then audit current salaries: employees below range minimum are green-circled (underpaid — require prompt resolution). Those above maximum are red-circled (overpaid relative to the grade — typically managed by freezing increases until the range catches up). Document every outlier with a resolution plan.

Governance is what makes a structure work over time. Define who can approve exceptions, how new roles are evaluated and placed, when market adjustments are triggered, and how frequently midpoints are reviewed against market movement. Without governance, a well-designed structure will drift out of alignment within three years.

Three Common Mistakes to Avoid