How to Establish Salary Ranges: A Complete Guide for HR and Payroll

If you're looking at the market and confused on how to establish salary ranges, that's okay, it is confusing. But it's important to get right for employee satisfaction. 

Clear salary ranges are a primary component of pay transparency efforts, something that 67% of job seekers say is an important factor when they assess a potential employer.

In this article, we’ll dig into how to assess and establish salary ranges, examine their benefits, and look at payroll services that can help you create a salary structure that is competitive and fair. 

What Are Salary Ranges?

Salary ranges are like the bookends of a library shelf – they keep everything organized and in place. These ranges include a minimum, midpoint, and maximum salary for each role within a company. 

Clear salary ranges ensure that employees are fairly compensated and know what to expect as they progress in their careers.

How to Get Started

“Start by defining your compensation philosophy—why you pay, what you reward, and how you balance internal equity with market competitiveness. From there, assign each level a salary range (minimum, midpoint, maximum), ensuring logical progression.” ~ Kim Keating, Compensation Expert and Executive Coach

By anchoring ranges in both philosophy and data, organizations create clarity and consistency that benefit both employees and leadership.

Why Are Salary Ranges Important?

Having well-defined salary ranges helps in maintaining pay transparency and trust within the company. It also aids in budgeting and ensures competitive pay, which is essential in attracting and retaining top talent.

Determine Your Talent Strategy

“Your compensation philosophy should reflect your talent strategy, which ought to be congruent with your business strategy. Based on that, decide whether to lead, lag, or match the market—but the key is to be intentional and consistent.”~ John Land, Chief Advocacy Officer at Vantage Circle

When organizations communicate the reasoning behind their salary ranges, employees see the system as fair and logical. That fairness builds trust, reduces turnover, and strengthens an organization’s employer brand.

Reduce Your Exposure to Lawsuits

“Begin with in-house pay information so that similar employees in similar jobs with similar years of experience are being equitably paid. Second, compare your salary ranges with external market data from credible pay surveys. A balanced approach creates credibility and reduces exposure to lawsuits.” ~ Eric Kingsley, Partner at Kingsley Szamet Employment Lawyers

6 Steps to Establish Salary Ranges

Setting new pay parameters is something that you'll want to do carefully and with one eye on the future. Here are some steps to follow as you ponder your salary ranges.

1. Conduct Market Research

To start, you'll need to gather market data on salaries for similar roles in your industry. This involves looking at salary surveys and industry reports. Websites like Glassdoor, Payscale, and industry-specific surveys can be helpful in gathering information, but in many cases, are not where you need to stop your search. 

Market research helps you understand what competitors are paying and ensures your ranges are competitive, but that information may not be publicly available.

Engaging with companies and tools that have access to this information can help a great deal in ensuring the accuracy of the data you’re working with. For example, investing in compensation management solutions or engaging with third-party analysts in the form of compensation benchmarking companies are two options you can explore to gain access to this type of data.

Use Reliable External Data

“The gold standard remains third-party survey providers like Mercer, Willis Towers Watson, Aon/Radford, or Culpepper. For niche roles, industry-specific surveys can be valuable. While crowd-sourced platforms like Glassdoor or Levels.fyi offer directional insight, they’re less reliable for decision-making.” ~ John Land, Chief Advocacy Officer at Vantage Circle

2. Analyze Internal Data

Next, review your current employee salaries to identify patterns and discrepancies, especially within similar jobs internally. Look at factors like job performance, experience, and tenure. You can also go over your checklist for payroll processing and pull holistic data about pay, benefits, employee classification, and pay schedules.

Dan George, CEO and Founder of Piper Key Analytics, notes that establishing which data points you're going to look at isn't a simple question to answer.

Dig Into Your Internal Data

“Start with what are the core responsibilities for the roles and how does that apply to your operating model (where the org generates income or has variability to reduce expenses),” he says. “The two biggest overlooked aspects are how will the salary ranges scale over time and how is the org applying these ranges to different departments?” ~ Dan George, CEO and Founder of Piper Key Analytics

3. Define Job Roles and Levels

Creating detailed job descriptions and levels within each role is crucial. Consistency and clarity in job definitions and roles help in setting appropriate salary ranges. 

"Consistency, meaning if levels or ranges start at level 1 and go up to level 5, do the roles of each department start at the same level or not? This goes back to the operating model," George said.

Companies like Google and Meta are known for their well-structured job roles and levels, which aid in clear salary determination. But even these companies are beginning to re-examine the traditional structure of how job roles and levels are determined.

As we found in our annual trends report, a move to skills-based structures is increasingly common.

Conduct Clear Job Level Analyses

“Start by clearly defining the role’s purpose, responsibilities, and impact. Then benchmark it against comparable roles in the market. Leverage job evaluation methodologies like point-factor or whole job ranking. Calibration sessions across departments help identify and resolve inconsistencies.” ~ John Land, Chief Advocacy Officer at Vantage Circle

4. Set Salary Range Parameters

Now, it's time to establish the minimum, midpoint, and maximum salary for each role. Consider market data and your company's budget. Good salary range parameters align with market trends and company goals, ensuring both competitiveness and sustainability.

Here are a few tips on how to do this. 

• Balance Internal Equity with External Competitiveness: Ensure your salary ranges reflect both the internal hierarchy and the external market rates to maintain fairness and attract top talent.
• Factor in Future Growth: Set ranges that can accommodate future salary increases, considering the company's growth projections and budget forecasts.
• Regularly Update Market Data: Use current and comprehensive market data for setting salary parameters, and review this data periodically to keep up with changing industry standards and economic conditions.

Define a Reasonable Midpoint

“Typically, companies define the midpoint of a range based on market data and then establish the minimum and maximum based on desired range spreads. Smaller firms or those in niche markets might operate with tighter bands, while larger organizations may allow broader flexibility.” ~ John Land, Chief Advocacy Officer at Vantage Circle

Lead the AI era of work.

Get actionable insights, frameworks, and leadership stories to stay future-ready.

Instagram

This field is for validation purposes and should be left unchanged.

Your email*

By submitting this form, you agree to receive our newsletter, and occasional emails related to People Managing People. You can unsubscribe at any time. For more details, please review our privacy policy. We're protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

5. Communication & Education = Transparency

Nothing catches the attention of your employees quite like changes in pay. For this reason, if you're resetting existing salary ranges, you'll need to clearly explain the how, when, why and who is effected to employees to maintain transparency.

Communicate a Transparent Timeline

“If the org is looking to reset ranges, and is seeking to communicate this to all employees, then transparency is imperative. This means when ranges are reset, roles and current pay need to be adjusted regardless of other factors. It doesn’t need to be immediate, but should have a set timeframe to which all roles and pay will have the new compensation structure become effective, usually within 6-12 months.”
~ Dan George, CEO and Founder of Piper Key Analytics

Communication isn’t just about announcing new numbers—it’s about building trust. Employees want to know that pay decisions are based on a fair, logical system. That means companies must not only share the changes, but also provide the reasoning behind them, and prepare managers to carry the message forward.

Try to Build Trust

“Use multiple channels: FAQs, manager toolkits, team meetings, and written guides. Equip people managers with training and talking points so they can have open dialogue with their team members. Trust is built when employees feel the system is fair and grounded in logic.” ~ John Land, Chief Advocacy Officer at Vantage Circle

Another essential part of communication is helping employees understand what their pay actually represents. Many employees focus solely on their base salary, but that only tells part of the story.

By educating staff on total compensation—which includes salary, bonuses, and long-term incentives—employers can ensure people understand the full value of their package.

Educate Staff about Total Compensation

“The best way to communicate pay ranges to employees is to share both the base salary and total compensation ranges for each role and level. Being proactive here shows your commitment to transparency and helps employees understand where they fall within those ranges.” ~ Brandon Bramley, Founder of The Salary Negotiator

When companies combine transparency with education, employees are far more likely to view pay structures as fair and motivating rather than confusing or arbitrary.

6. Review and Adjust Regularly

The job market is dynamic, so it's essential to review and adjust salary ranges periodically. Typically, companies review their salary structures every one to three years. Regular reviews help in staying competitive and fair.

According to the Society for Human Resource Management, about 77% of companies review their salary ranges annually, whereas only 17% wait a period of two to three years.

Those numbers are a bit old, but not much has changed when it comes to frequency of salary range checks. The only exception is if you're operating in a high inflation market where peer group salaries increase frequently.

Validate Data Annually

“Even if you don’t revise every range each year, validating data annually ensures competitiveness and internal equity. Use this review to identify compression issues, assess outliers, and evaluate whether external or internal changes warrant adjustments.” ~ Kim Keating, Compensation Expert & Executive Coach

When Should You Establish or Revisit Salary Ranges?

Establishing salary ranges isn't just a one-time task, it's a strategic process that can be triggered by several key events or changes within a company. 

The purpose of compensation management in HR is to balance internal equity and external competitiveness. Understanding when to establish or re-evaluate salary ranges is crucial for maintaining a fair and competitive compensation strategy.

Be Proactive and Don't Wait

“Start simple. Don’t aim for perfection—aim for clarity and fairness. I’ve seen companies who wait too long to establish pay ranges that caused the loss of top talent and created employee distrust. Building even a basic foundation gives you structure to grow and evolve.” ~ John Land, Chief Advocacy Officer at Vantage Circle

Here are eight common scenarios for when you should review and adjust your pay ranges:

1. Company Growth or Expansion

When a company experiences significant growth or expansion, it's a perfect time to establish salary ranges. As new roles are created and teams grow, having structured salary ranges ensures consistency and fairness. It also helps in budgeting for new positions and managing payroll effectively.

2. Mergers and Acquisitions

During mergers and acquisitions, integrating different company cultures and pay structures can be challenging.

Establishing new salary ranges helps align compensation practices across the merged entities, ensuring equity and cohesion among employees.

3. Market Changes

The job market is constantly evolving. Significant shifts in industry standards, economic conditions, or regional salary trends can necessitate a review and establishment of new salary ranges.

Keeping up with these changes ensures your company remains competitive in attracting and retaining talent.

Regular Reviews are Crucial

“Organizations must examine their pay structures at least once a year. They will probably be forced to do this more frequently in the event of major labor market shifts, cost-of-living variations, or changes in business strategy. Regular review is needed to ensure equity and prevent legal exposure.” ~ Eric Kingsley, Partner at Kingsley Szamet Employment Lawyers

4. Organizational Restructuring

When a company undergoes restructuring, such as redefining job roles or implementing new levels within the organization, it's an ideal time to establish or revise salary ranges. This ensures that the new structure is supported by a fair and transparent compensation system.

5. High Turnover Rates

If your company is experiencing high turnover rates, it might be a signal that your compensation packages are not competitive or that your people don’t feel your pay practices are fair.

The value of pay transparency has been shown in a number of studies in which job satisfaction and retention increase as pay equity and transparency are addressed. 

Salary Transparency Can Improve Trust

“A well-designed system not only minimizes your exposure to lawsuits, but it also increases job satisfaction and retention. Salary transparency, if well handled, is a trust-building tool, not a source of discord.” ~ Eric Kingsley, Partner at Kingsley Szamet Employment Lawyers

6. Employee Feedback

Regular feedback from employees about pay dissatisfaction or concerns can trigger the need to examine salary ranges. Listening to employee feedback and responding with well-defined salary structures can improve morale and trust within the organization.

7. New Regulatory Requirements

Changes in labor laws and regulatory requirements can also trigger the need to establish salary ranges.

Compliance with new regulations ensures that your company avoids legal issues and remains aligned with the company’s compensation philosophy.

8. Performance and Compensation Reviews

Annual or bi-annual performance and compensation reviews often highlight discrepancies or the need for adjustments in salary ranges.

These reviews provide an opportunity to establish updated salary ranges that reflect current performance standards and market conditions.

5 Key Benefits of Establishing Salary Ranges

It may sound like common sense, but having well-established salary ranges delivers far more than just orderly pay bands. When implemented thoughtfully, ranges can transform employee trust, retention, and organizational alignment.

1. Increased Transparency

Clear salary ranges help employees understand how their pay is determined and how they can progress over time. Transparency reduces speculation, minimizes perceptions of bias, and reinforces trust in leadership.

Statistics show that companies with transparent salary ranges see a 15% increase in employee retention rates, according to SHRM.

Pay Transparency Can Fix Morale

“At one organization, a lack of defined ranges had led to inconsistent offers and morale issues. By implementing a structured band system—with clear midpoints and defined placement rules—we identified and corrected pay compression, improved transparency, and reduced turnover among early-career staff. Employees felt the process was fair, and managers gained confidence in making equitable decisions.” ~ Kim Keating, Compensation Expert and Executive Coach

2. Improved Employee Retention

When employees believe compensation decisions are fair and consistent, they are more likely to stay. Salary ranges create clarity around how pay increases are determined, reducing the risk of turnover caused by pay dissatisfaction or inequity.

Structured ranges also give employees confidence that promotions and raises are tied to measurable factors, not arbitrary decisions. This predictability strengthens morale and long-term loyalty.

3. Easier Budgeting and Planning

From an organizational perspective, salary ranges provide predictable guardrails for workforce costs. HR and finance leaders can forecast future payroll expenses more accurately, allocate resources strategically, and avoid unexpected spikes in compensation.

A structured approach ensures that new roles are slotted into the right bands without creating internal inequities or budget overruns.

4. Stronger Leadership Consistency

Salary ranges give leaders and managers a framework for making consistent decisions. Without them, managers may negotiate ad hoc offers, leading to internal pay gaps and frustration. With ranges, leaders are empowered to make competitive offers that remain equitable across the organization.

This consistency not only reduces confusion but also protects organizational credibility in the eyes of employees.

5. Career Development Clarity

For smaller organizations especially, salary ranges can provide clarity on career development. Broader bands allow employees to see where they currently sit, what growth looks like, and how their pay can evolve with skill development and tenure.

Broad Salary Bands Give Staff Room to Grow

“Broader salary bands give employees room to grow within a role without requiring promotion. This encourages skill development and retention, and helps employees see how they can advance both vertically and laterally within the organization.” ~ John Land, Chief Advocacy Officer at Vantage Circle

Well-designed salary ranges create value on multiple levels: employees gain transparency and trust, leaders gain consistency, and organizations gain predictability. Together, these benefits make ranges not just a compensation tool, but a powerful lever for engagement and retention.

3 Common Challenges in Setting Salary Ranges

Salary ranges evolve, sometimes quickly. It presents a never-ending need for analysis and resetting. Here are some of the things that will drive that need. 

1. Dealing with Market Variations

Different markets and regions have varying salary levels and regulations. To tackle this, look for the most localized salary data you can find and adjust ranges accordingly for where candidates live, including potential cost of living adjustments.

Websites like the Bureau of Labor Statistics can provide a good starting point for regional insights.

2. Addressing Internal Pay Discrepancies

Existing pay discrepancies can cause dissatisfaction, disengagement, and tensions within the ranks.

Conducting a pay equity audit and making necessary adjustments ensures fairness and reinforces employee trust. This process can highlight areas needing correction and ensure everyone is paid equitably for their role.

Always Be Consistent

“Inconsistent application is one of the most common mistakes. Where there is non-compliance with the rules or granting an exception for no cause, trust is lost very quickly. Failure to train leaders in applying the new system is another mistake, which often leads to confusion and frustration.” ~ Eric Kingsley, Partner at Kingsley Szamet Employment Lawyers

Maintaining Flexibility

Flexibility in salary ranges is crucial for attracting exceptional candidates, especially in competitive or niche markets. Create guidelines for salary exceptions and approvals to accommodate these unique situations, without undermining the integrity of your overall system.

Build in Flexibility

“Creating too many narrow bands restricts growth and flexibility. Companies should instead design ranges that allow for career development while still keeping internal equity in check.” ~ John Land, Chief Advocacy Officer at Vantage Circle

Even with the best planning, these challenges make it clear that salary ranges aren’t a “set it and forget it” exercise. They require regular attention, consistent application, and thoughtful adjustments to stay effective.

The good news is that there are now a wide range of compensation tools and resources available that can make this process far easier to manage.

Tools to Help You Establish Salary Ranges

Establishing and maintaining salary ranges requires accurate data and consistent methodology. While some organizations try to piece this together manually, modern compensation tools provide a faster and more reliable way to benchmark pay, analyze equity, and stay compliant with labor laws.

Whether you’re a small business looking for accessible insights or a larger organization needing robust benchmarking, these tools can make the process more efficient and less error-prone.

1. 1. Deel — Best for real-time benchmarking in 110+ countries
2. 2. Compease — Best for fair merit increase plans
3. 3. Workleap — Best for company-wide compensation reviews
4. 4. Aeqium — Best for adaptive enterprise compensation planning
5. 5. Trinet — Best for competitive salary benchmarking
6. 6. OpenComp — Best for benchmarking against accurate market data
7. 7. CompUp — Best for complex compensation programs and TRS
8. 8. Pave — Best for real-time compensation data
9. 9. Xoxoday Compass — Best for gamified sales incentive programs
10. 10. Xactly — Best for incentives that drive performance

Show More (3)

While free tools like Glassdoor or Payscale are a good starting point, compensation experts caution that relying on them exclusively can create gaps in accuracy.

Instead, employers should use data that reflects their company size, industry, revenue, and location to avoid misalignment. For many organizations, that means investing in third-party surveys from providers like Mercer or Willis Towers Watson, or working with HR consultants to validate benchmarks.

The right tool will depend on your size, industry, and budget—but the goal remains the same: to ensure your salary ranges are fair, competitive, and aligned with your compensation philosophy.

FAQs

What steps should I follow to establish effective salary ranges?

Follow these steps: conduct market research, analyze internal data, define job roles and levels, set salary range parameters, and review and adjust regularly.

How often should salary ranges be reviewed?

Salary ranges should typically be reviewed annually or bi-annually to stay competitive and fair.

What tools can help establish and manage salary ranges?

Tools like PayScale, Glassdoor, SHRM, CompAnalyst by Salary.com, and Radford Global Compensation Database can assist in establishing and managing salary ranges. But perhaps the best solution is a payroll service provider who can take on the task for you using both data from other clients and external data.

Payroll software solutions or pay equity software may also prove valuable with their extensive range tools for tasks such as salary benchmarking.

Why are salary ranges important?

Salary ranges ensure transparency, fairness, and competitiveness, aiding in employee satisfaction and retention.

How can I address internal pay discrepancies?

Conduct a pay equity audit and make necessary adjustments to ensure fair compensation for all employees.

Summary

Establishing clear and competitive salary ranges is essential for attracting and retaining top talent. By conducting market research, analyzing internal data, defining job roles, setting parameters, and regularly reviewing ranges, you can create a fair and transparent pay structure. 

Remember, regular reviews and flexibility are key to staying competitive in a dynamic job market.

Want to keep up with the latest practices in compensation and benefits? Subscribe to the People Managing People newsletter and get all the latest insights and trends straight to your inbox.