Why Most Companies Get Pay Ranges Wrong
Here’s an uncomfortable truth: a lot of companies in the US are still setting salaries based on gut instinct, what they paid the last person in the role, or whatever number came up in a rushed negotiation. That works — until it doesn’t. And when it stops working, the fallout is real: pay inequities, turnover, recruiter headaches, and a compensation structure that makes zero sense to anyone who looks too closely.
If you’ve been tasked with cleaning this up — or building something from scratch — knowing how to build salary ranges properly is one of the highest-leverage things you can do for your organization. Done well, it creates structure, fairness, and a foundation for every compensation decision that follows.
This post walks you through exactly how to do it.
Start With Job Architecture — Not Salary Data
Most people jump straight to market data. That’s a mistake.
Before you can price anything, you need to understand what you’re pricing. That means doing the foundational work of defining job families, levels, and the criteria that distinguish a Level 2 from a Level 3 from a Senior. This is called job architecture, and it’s the skeleton everything else hangs on.
Why this matters:
Without it, you end up with roles that are named differently but do the same work, or the same title slapped on positions with wildly different scope. When you go to pull market data, you’re comparing apples to potatoes.
Take the time to map out your roles. Define what progression looks like. Agree on the criteria — skills, scope, impact, complexity — before you touch a salary spreadsheet.
Gather Real Market Data (And Know Its Limits)
Once your job architecture is solid, you can go external. Market data is the reality check that keeps your ranges grounded in what the labor market is actually paying — not what you think it’s paying.
Where to source compensation data:
- Survey providers like Mercer, Willis Towers Watson, Radford (Aon), and CompData are the gold standard. They’re not free, but they’re built for this.
- Free tools like the Bureau of Labor Statistics Occupational Employment and Wage Statistics (OEWS) are useful for benchmarking but are often a year or two behind market movement.
- Crowdsourced data like Levels.fyi (for tech) or Glassdoor can supplement, but treat it as directional — not definitive.
When pulling data, pay attention to the percentiles. The 25th, 50th (median), and 75th percentile are typically what you’ll use to anchor your ranges. A company trying to attract top-tier talent in a competitive market might target the 75th percentile. One in a cost-sensitive sector might anchor closer to the median.
Neither approach is wrong — but you need to be intentional about it.
Build the Range Structure
Here’s where the architecture and the market data come together.
Setting the midpoint:
The midpoint of your range is your anchor — it typically represents the market rate for a fully proficient employee in that role. Start by pulling the market median for each benchmark job, then assign midpoints to your internal levels.
Setting range spreads:
Range spread refers to the distance between your minimum and maximum. A common formula: ((Max − Min) / Min) × 100.
Typical spreads by level look something like this:
- Entry-level roles: 40–50% spread
- Mid-level professional roles: 50–60% spread
- Senior/specialist roles: 60–80% spread
- Director and above: 80%+
Why wider spreads at senior levels? Because the difference between a new Director and a seasoned one with deep organizational impact is massive — and your range needs room to reflect that.
Range overlaps:
Some overlap between adjacent levels is normal and healthy. It means a high-performing Level 3 can earn more than a new Level 4. What you want to avoid is 100% overlap, where the ranges are so similar that levels become meaningless.
Price Non-Benchmark Roles
You won’t find market data for every single job. For roles that don’t match cleanly to survey benchmarks, you’ll need to slot them internally.
Look at the scope, complexity, and skills required. Where does this role sit relative to the benchmarks you do have data for? Slot it into the appropriate level and apply that level’s range. Document your rationale — you’ll thank yourself later when someone asks why the Operations Coordinator sits in Band 4.
The Role of Technology in Scaling This Work
Doing this manually for a 50-person company is hard. Doing it manually for a 500-person company is a nightmare. As your organization grows, spreadsheets stop being a solution and start being a liability.
That’s where a compensation management system becomes critical. These platforms centralize your range structures, connect to market data, track where employees fall within their ranges, and give managers and HR real-time visibility. Less guesswork, fewer errors, more consistency.
If you’re evaluating options, looking at top compensation management software can help you understand what’s available — from enterprise platforms like Workday Compensation and Beqom to mid-market tools like CompXL and Payfactors. The right fit depends on your company size, budget, and how sophisticated your comp program needs to be.
Communicate Ranges Transparently (Yes, Really)
Salary range transparency is no longer optional in much of the US. Colorado, New York, California, Washington — pay transparency laws are spreading fast, and the cultural expectation is shifting even where laws don’t yet require it.
More importantly, transparency builds trust. When employees understand how pay is structured, they’re less likely to feel like compensation is arbitrary or politically driven. That’s a retention advantage.
What to communicate:
- The range for their current role and level
- What drives movement within the range
- How ranges are updated (and how often)
You don’t have to share everyone’s salary. But people should be able to understand the system they’re operating in.
Maintain and Update Your Ranges Annually
This is the step most companies skip. They build ranges, pat themselves on the back, and then revisit them three years later when everyone’s comp is out of market.
Compensation isn’t a one-time project. Markets move — sometimes dramatically, as anyone who lived through 2021–2022 hiring can tell you. Build in an annual review cycle tied to your compensation survey refresh. Adjust midpoints, check range compa-ratios, and make sure your structure is still doing its job.
Build It Once. Build It Right.
Knowing how to build salary ranges isn’t just an HR skill — it’s a business skill. Done properly, your salary range structure reduces bias, supports equitable pay, strengthens recruiting, and gives managers a clear framework for compensation decisions.
The foundation is always the same: solid job architecture, credible market data, intentional range design, and a commitment to keeping it current.
Ready to professionalize your compensation program? Start by auditing your current structure — or if you’re starting from zero, map your job architecture this week. The investment pays off in every single hire and every single retention conversation that follows.
