How to determine salary ranges: a practical employer guide

A salary range defines the pay available for a particular role or level.

Most ranges have three reference points:

MINIMUM → MIDPOINT → MAXIMUM

The minimum is the lower boundary of the range.

The midpoint is the organization’s central pay reference for that range.

The maximum is the upper boundary.

The difficult part is not calculating those three numbers.

It is deciding which jobs belong together, which market evidence should anchor the range, how wide the range should be and what each point is supposed to mean.

A useful process is:

PHILOSOPHY → JOB LEVEL → MARKET REFERENCE → MIDPOINT → RANGE WIDTH → MIN/MAX → VALIDATE → GOVERN

1. Decide what your salary ranges are meant to achieve

Before setting numbers, define how the organization intends to use pay.

Questions include:

Which labor markets do we compete in?

Do we want pay to broadly match, lead or otherwise position against those markets?

Which factors should create differences in pay?

How should location affect salary?

How much progression should be possible within one level?

What role do performance, skills and responsibility play?

These decisions form part of the organization’s compensation philosophy.

For example, two companies may use the same salary benchmark but build different ranges because one competes nationally for specialist talent while the other recruits predominantly within a regional labor market.

The point is not to choose an arbitrary percentile.

It is to define a pay position that reflects the organization’s talent strategy.

For the broader strategic framework, see Compensation Philosophy Examples: 8 Models & How to Choose.

2. Define the jobs and levels before pricing them

External salary data becomes much less useful when the internal role is poorly defined.

A title such as Marketing Manager can describe:

• a channel specialist;
• an individual contributor;
• a team manager;
• a regional lead;
• the most senior marketer in a small company.

Those jobs should not automatically share a range because the title happens to match.

Before pricing roles, establish enough job architecture to compare work consistently.

Useful factors include:

• scope;
• complexity;
• autonomy;
• expertise;
• decision authority;
• people responsibility;
• budget responsibility;
• commercial impact.

Use job families where they help

Related roles can be grouped into job families.

A marketing organization might have families such as:

• Content;
• Performance Marketing;
• Product Marketing;
• CRM / Lifecycle;
• Marketing Operations.

The purpose is not to create as many categories as possible.

It is to make it easier to compare roles that develop through similar kinds of work.

Define what changes between levels

A simple level structure might distinguish between:

These are examples, not universal level definitions.

Your own levels should describe the work that actually exists in the organization.

3. Choose the right market reference

Once the jobs are defined, match them with appropriate external salary evidence.

A useful benchmark should be comparable across factors such as:

• role content;
• level;
• geography;
• industry where relevant;
• company type or size where material.

Do not price a role from its title alone.

And do not assume one broad salary figure represents every labor market in which you hire.

Decide where you want the range midpoint to sit

The midpoint is often connected to the organization’s chosen market position.

That does not mean every midpoint must equal the market median.

An employer may choose a different reference because of:

• talent competition;
• job family;
• location;
• business strategy;
• other elements of total compensation.

The important principle is consistency:

The midpoint should have a documented relationship with the market reference you have chosen for that role or level.

The detailed process for choosing and interpreting market data belongs in salary benchmarking.

4. Decide how wide the range should be

The distance between the minimum and maximum determines how much salary variation can exist within one range.

A wider range allows more room for employees to develop while remaining at the same level.

A narrower range gives less room between entry into the level and its upper boundary.

There is no universal spread that every employer should use.

Consider:

• how much capability can reasonably vary within the level;
• how long people may remain at that level;
• whether roles progress rapidly into another level;
• how much the external market varies;
• how adjacent levels should relate to one another.

Define what “range spread” means

Compensation teams do not always use identical range-width terminology.

One common definition is:

Range spread = (Maximum − Minimum) ÷ Minimum

Using this convention, a 40% spread means the maximum is 40% above the minimum.

Once you choose a convention, use it consistently across the structure.

5. Calculate the minimum and maximum

Suppose you have decided:

Midpoint: $100,000

Range spread: 40%

and your spread convention is:

(Maximum − Minimum) ÷ Minimum

You can calculate:

Minimum = Midpoint ÷ (1 + Spread ÷ 2)

So:

$100,000 ÷ 1.20 = $83,333

Then:

Maximum = Minimum × (1 + Spread)

So:

$83,333 × 1.40 = approximately $116,666

The resulting range is approximately:

$83,333 to $116,666

Example salary range

The formula creates consistency.

It does not determine whether the range itself is appropriate.

That still depends on:

• job matching;
• market evidence;
• internal structure;
• range design.

6. Check how adjacent salary ranges work together

Do not review each range in isolation.

Look at the structure as a whole.

For example:

These figures are illustrative only.

The important questions are:

Is there enough distinction between levels?

Is some overlap intentional?

Can an experienced employee remain in one level without immediately reaching the maximum?

Does promotion into a higher level create a meaningful change in scope as well as pay?

Are any ranges inconsistent with the external market for that work?

Range overlap is not automatically a problem

An experienced employee near the top of one level may legitimately earn more than somebody newly appointed to the next level.

The roles may differ in scope even while salaries overlap.

A clean salary structure therefore does not require:

Maximum of Level 1 < Minimum of Level 2

in every case.

The structure needs to support sensible pay decisions, not produce aesthetically perfect bands.

7. Map current employees into the proposed ranges

Before implementing a new structure, compare the ranges with the people already doing the work.

For each employee, review:

• current salary;
• assigned role;
• level;
• proposed range;
• position within the range.

This can expose problems that are not obvious from market data alone.

Use compa-ratio as one diagnostic

A compa-ratio compares salary with the range midpoint.

Compa-ratio = Employee salary ÷ Range midpoint

For example:

Salary: $90,000

Midpoint: $100,000

Compa-ratio = 0.90

That means the employee earns 90% of the range midpoint.

A compa-ratio of:

• 1.00 means salary equals midpoint;
• below 1.00 means salary is below midpoint;
• above 1.00 means salary is above midpoint.

That does not tell you automatically whether the salary is correct.

Position in range may reasonably reflect factors such as:

• proficiency;
• experience within the level;
• sustained contribution;
• market movement;
• geographic policy.

Use compa-ratio to identify where further review may be useful, not as an automatic pay-adjustment rule.

8. Test internal consistency and compression

Mapping current employees can reveal patterns such as:

• employees below the proposed minimum;
• salaries above the proposed maximum;
• employees doing similar work with materially different pay;
• new-hire pay approaching experienced-employee pay;
• manager and direct-report salaries sitting unusually close together;
• one job family consistently sitting differently from others.

These are signals to investigate.

They are not proof of inequity by themselves.

Salary compression needs context

Compression occurs when pay differences between employees or levels narrow.

It can happen when:

• market rates rise quickly;
• new-hire salaries move faster than incumbent salaries;
• minimum wages or salary floors increase;
• employees remain on old salary structures;
• adjacent ranges are poorly designed.

The right response depends on why the compression exists.

Do not automatically increase every manager’s salary simply because a direct report is close to it.

Compare the:

• roles;
• levels;
• market values;
• responsibilities;
• individual placement decisions.

For the broader workforce-level review of pay and equity, see compensation analysis.

9. Calculate the cost of implementing the structure

A technically sound salary structure still needs to be financially workable.

At minimum, calculate the cost of resolving employees whose salary would fall below the new range minimum.

For each affected employee:

Adjustment required = New minimum − Current salary

Then aggregate those adjustments.

Also consider any associated effects on:

• payroll costs;
• employer taxes;
• pension or retirement contributions;
• bonus calculations tied to salary;
• adjacent employee pay.

Do not stop at the cost of the first adjustment.

A new range structure may also affect future:

• hiring;
• promotions;
• merit budgets;
• salary reviews.

The purpose of the cost analysis is to understand what implementation requires before the ranges are approved.

10. Define what minimum, midpoint and maximum mean

A range is difficult to manage if managers do not know how employees are supposed to move through it.

Document what each part of the range represents.

For example:

Minimum

May represent someone who:

• meets the level requirements;
• is relatively new to the scope;
• still has room to develop within the level.

Midpoint

May represent someone who:

• is fully established in the level;
• consistently handles its expected scope.

Maximum

May represent someone who:

• has extensive proficiency within the level;
• is still legitimately performing work at that level rather than already operating in a higher-level role.

These should be treated as internal placement principles, not universal definitions.

Avoid automatic midpoint entitlement

The midpoint is not necessarily:

• the salary everyone should reach after a fixed number of years;
• the market salary for every individual;
• a reward for acceptable performance.

Likewise, the maximum should not become a target that every employee automatically reaches.

Placement should reflect the organization’s actual compensation policy.

11. Document exceptions

Not every role will fit neatly.

You may encounter:

• unusually scarce skills;
• legacy salaries;
• acquisition-related pay;
• employees above range;
• temporary market pressure;
• roles whose scope does not match the standard level.

Decide:

• who can approve an exception;
• what evidence is required;
• how it is documented;
• whether the exception should eventually alter the range itself.

If exceptions become common, the structure may be wrong.

12. Review ranges when the evidence changes

Salary ranges should not be treated as permanent.

Review may be needed when:

• market pay moves materially;
• jobs change in scope;
• the organization enters a new geography;
• a job family develops persistent hiring problems;
• internal pay analysis reveals structural issues;
• the compensation philosophy changes.

That does not mean every range needs to move by the same percentage every year.

Inflation, salary-budget movement and market-rate movement are related but different concepts.

Review the evidence first, then decide whether:

• the ranges need updating;
• individual salaries need updating;
• both;
• neither.

Salary range building example

A practical process might look like this:

Final salary-range checklist

Before approving salary ranges, check:

Job structure

Are jobs matched by actual scope rather than title alone?

Are levels clearly differentiated?

Market evidence

Are benchmarks relevant to the talent market?

Is the chosen market position deliberate?

Range design

Does every range have a clear minimum, midpoint and maximum?

Is the range-width convention consistent?

Is overlap between levels intentional?

Current employees

Have existing salaries been mapped into the structure?

Have unusual compa-ratios been investigated rather than automatically corrected?

Have compression and consistency issues been reviewed?

Cost

Do you know the cost of bringing salaries below new minimums into range?

Have related payroll consequences been considered?

Governance

Do managers know what minimum, midpoint and maximum mean?

Is there an exception process?

Is ownership for future review clear?

Communication

Can the organization explain how ranges are built and used consistently?

For the wider implications of sharing salary information with employees and candidates, see What Is Pay Transparency? How It Works for Employers & Employees.

A useful salary range is not simply a market number with a percentage added above and below it.

It is the result of clear job architecture, relevant market evidence, deliberate range design and validation against the workforce that will actually use it.

Range design should also follow a documented compensation philosophy. If gaps between new hires, experienced employees or adjacent levels have collapsed, review pay compression before changing the structure.