How does a compensation analyst build salary bands for a company?

Building salary bands (also known as salary grades or pay ranges) is one of the core responsibilities of a compensation analyst. It ensures a company pays competitively to attract talent while maintaining internal equity so employees doing similar work are paid fairly.

Here is the step-by-step process a compensation analyst uses to build them:

• Gather data : Review job descriptions to understand duties, responsibilities, and qualifications across the organization.

• Determine FLSA status : Classify roles as exempt or non-exempt to comply with labor laws.

• Evaluate worth : Use a methodology like the SHRM Job Evaluation Guide (ranking, classification, or point-factor methods) to measure the relative value of each job.

• Group jobs : Slot jobs with similar internal value, skill requirements, and responsibilities into the same organizational grade or level (e.g., Grade 5 for mid-level software engineers, Grade 2 for administrative assistants).

• Collect survey data : Pull data from reputable compensation market surveys (such as Mercer Surveys or Radford by Aon ) matching job codes and descriptions.

• Adjust for variables : Adjust the raw market data based on company size, industry, and geographic location (using geographic differentials).

• Calculate market composite : Determine the market median (the 50th percentile of what competitors pay) for each job grade.

• Define strategy : Align with leadership on where the company wants to target the market (e.g., paying at the 50th percentile for market median, or 75th percentile for tech talent).

• Set range midpoints : The midpoint of a salary band usually aligns directly with the market median rate for the jobs assigned to that grade.

• Determine spread : Decide on the range spread (the distance between the minimum and maximum pay) based on job levels:

  • Entry-level roles : Narrower spread (30% to 40%) because employees progress quickly or have less variance in performance.
  • Executive/Senior roles : Wider spread (50% to 60%+) to allow room for long-term performance growth and varied expertise.

• Apply formulas:

  • M i n i m u m=M i d p o i n t÷(1+[S p r e a d÷2])
  • M a x i m u m=M i d p o i n t×(1+[S p r e a d÷2])

• Establish the midpoint/quartiles : Define the minimum (control point for new hires), midpoint (fully proficient/market rate), and maximum (ceiling for top performers).

• Conduct cost modeling : Slot current employee salaries into the new proposed bands.

• Identify anomalies : Look for "compra ratio" outliers—employees falling below the minimum (underpaid) or above the maximum (red-circled/overpaid) and budget for adjustments.

• Overlap ranges : Ensure adjacent bands overlap slightly (usually 15% to 25%) so promotions don't result in drastic salary adjustments that fall below the minimum of the next tier.

• Obtain approval : Present the model to executive leadership and finance.

• Communicate : Train managers and HR business partners on how to use the bands for hiring offers and merit increases.

• Review annually : Re-benchmark market data and adjust bands yearly to account for inflation and shifting labor markets.

If you'd like, let me know:

• Are you designing bands for a specific industry or geographic region?
• Do you need help choosing a job evaluation method?

I can provide deeper formulas or practical examples for your setup.

A compensation analyst usually builds salary bands by combining market data, internal job levels, and the company’s compensation philosophy. The goal is not simply to find “the average salary,” but to create a structure that tells the company what it should generally pay for work of different levels and skills.

Here’s the process.

1. Define the compensation philosophy

First, the company decides where it wants to sit relative to the market.

For example:

• 50th percentile: pay around market median.
• 60th–65th percentile: pay somewhat above market to compete for talent.
• 75th percentile: deliberately lead the market.
• Different philosophies may apply to different job families or locations.

The analyst also considers the company's budget, talent strategy, geographic footprint, and how aggressively it wants to compete for particular skills.

2. Level the jobs

Before looking at salaries, the analyst needs to understand what level each job actually represents.

For example:

The analyst evaluates things like:

• Scope and complexity
• Required experience
• Decision-making authority
• Management responsibility
• Business impact
• Required skills
• Typical career progression

This is critical because a company's internal title doesn't necessarily correspond to the external market. A company might call someone a "Senior Analyst" while the market would consider the job an Analyst II.

3. Match jobs to market data

Next, the analyst obtains salary survey data from sources such as compensation surveys and market-pricing databases.

They match the company's jobs to comparable external jobs and typically look at market percentiles such as the 25th, 50th, and 75th percentile.

Market pricing is one of the most common approaches to designing salary structures, often combined with internal job evaluation.

For example, suppose the market data for a Software Engineer II looks like:

• 25th percentile: $105,000
• 50th percentile: $120,000
• 75th percentile: $135,000

If the company's philosophy is to pay at market median, the analyst might establish a $120,000 midpoint for the relevant salary grade.

4. Group jobs into salary grades/bands

The analyst doesn't necessarily create a completely separate range for every job.

Instead, jobs of comparable internal value and market positioning are grouped into grades.

For example:

The exact number of grades varies considerably by organization. Traditional structures have many relatively narrow grades, while broad-banding uses fewer, wider ranges.

5. Establish the midpoint

The midpoint is the most important number in the range.

It generally represents the company's target rate for a fully competent employee performing the job at the expected level.

For example:

Grade 10 midpoint = $93,000 The midpoint might come from the market data, an average/weighted assessment of multiple benchmark jobs, or a combination of market and internal considerations.

The analyst then creates a progression between grades. For example:

• Grade 10 midpoint: $93,000
• Grade 11 midpoint: $112,000
• Grade 12 midpoint: $135,000

That creates roughly a 20% progression between G10 and G11 and another 21% between G11 and G12.

Companies often use larger midpoint differentials as job value increases. Mercer describes traditional structures as commonly having midpoint progressions around 10%–20%, although actual practice varies.

6. Determine the range spread

Now the analyst decides how far the minimum and maximum should sit from the midpoint.

A traditional range might look like:

$75K — $93K — $111K

• Minimum: $75K
• Midpoint: $93K
• Maximum: $111K

That's approximately a 39% spread from minimum to maximum.

A common traditional structure might use something around 80%–120% of midpoint, although companies use many different designs.

More senior jobs often receive wider ranges because there is greater variation in experience, capability, and contribution.

7. Add geographic differentials if necessary

A company operating in multiple labor markets may need different structures.

For example:

Software Engineer III

Alternatively, the company might use one national structure and geographic differentials.

The important point is that the labor market for the job matters, not simply the employee's physical location.

8. Put the existing employees into the bands

This is where the analyst starts finding problems.

Suppose the new range for Senior Analyst is:

$80K – $100K – $120K

But existing employees are:

• Alice: $82K
• Bob: $97K
• Carol: $118K
• David: $126K

David is above the range maximum.

The analyst investigates why, rather than automatically reducing David's salary.

Maybe David has:

• 15 years of experience
• Rare technical expertise
• Exceptional performance
• A legacy salary
• A previous market adjustment

The analyst also looks for people who are unusually low in the range.

9. Calculate compa-ratios

One of the most useful metrics is the compa-ratio:

Compa-ratio = employee salary ÷ range midpoint

So if:

• Salary = $90,000
• Midpoint = $100,000

then:

$90K ÷ $100K = 90%

That employee has a 90% compa-ratio.

A 100% compa-ratio means the employee is exactly at the midpoint.

A compensation analyst might generally expect newer employees to sit lower in the range and experienced, highly capable employees to sit closer to or above midpoint—but the actual guidelines depend on the company's philosophy.

10. Test for pay equity and compression

This is a major part of the analysis.

The analyst asks:

• Are similarly situated employees paid consistently?
• Are there unexplained gender or demographic pay differences?
• Are new hires being paid almost as much as experienced employees?
• Are managers being paid appropriately relative to their direct reports?
• Are employees in the same grade clustered strangely?
• Are certain jobs consistently below market?
• Did the new ranges create salary compression?

For example, if a new hire gets $105K while a five-year employee in the same job earns $108K, the analyst may investigate whether the experienced employee's pay has fallen behind.

SHRM specifically warns that implementing new market ranges without considering the cost of bringing existing employees along can create compression or inversion problems.

11. Model the cost

This is where compensation becomes part finance.

Suppose 50 employees fall below the company's desired minimum or target positioning.

The analyst calculates:

What would it cost to bring these employees into the new structure? They might model several scenarios:

• No adjustment
• Bring everyone to minimum
• Bring employees below 90% compa-ratio to 90%
• Bring employees to target positioning
• Full market adjustment

The analyst then works with HR and Finance to determine what the company can afford.

12. Validate and implement

Finally, the analyst presents the proposed structure to HR leadership and executives.

They may adjust:

• Grade assignments
• Market positioning
• Midpoint progression
• Range widths
• Geographic differentials
• Individual employee adjustments

Once approved, the bands become the framework for:

• Hiring
• Promotions
• Merit increases
• Internal transfers
• Pay equity reviews
• Workforce budgeting

And the structure is periodically refreshed as the labor market changes. SHRM notes that many organizations review their salary structures annually.

A simple example

Imagine a company wants to create a band for Financial Analyst II.

Market data suggests the company's target market rate is:

$85,000

The company decides that this will be the midpoint and wants a 40% range spread.

It might establish:

$72K — $85K — $102K

Then:

• A new employee might enter around $72K–$78K.
• A fully competent employee might be around $85K.
• A highly experienced employee might be $95K–$102K.
• Someone at $110K requires an explanation because they're above the established range.

The analyst then looks at every Financial Analyst II employee, calculates their compa-ratio, examines their experience/performance, checks for equity issues, and calculates the cost of bringing salaries into alignment.

In short:

Job leveling → market pricing → determine midpoint → create range → map employees → analyze compa-ratios/equity → model cost → implement → refresh That's essentially the compensation analyst's workflow for turning messy salary data into a structured, defensible pay system.

The analyst then looks at every Financial Analyst II employee, calculates their compa-ratio, examines their experience/performance, checks for equity issues, and calculates the cost of bringing salaries into alignment.

In short:

Job leveling → market pricing → determine midpoint → create range → map employees → analyze compa-ratios/equity → model cost → implement → refresh That's essentially the compensation analyst's workflow for turning messy salary data into a structured, defensible pay system.

A compensation analyst usually builds salary bands by combining internal job hierarchy with external market pay data. The goal is to create ranges that are competitive, internally equitable, financially manageable, and usable for hiring, promotions, and raises. WorldatWork describes salary structures as the foundation for base-pay administration, with market value and internal job value both influencing where jobs sit.

The process

1. Define the compensation philosophy

Before calculating anything, the company decides things like:

• Do we target the 50th percentile of the market, or 60th/75th?
• Do we want to pay differently for scarce skills?
• Are we using national, regional, or location-specific markets?
• How much differentiation do we want between levels?
• How much flexibility should managers have?

The 50th percentile is a common midpoint target; WorldatWork's 2023 survey found it was still the predominant target.

2. Build the job architecture

The analyst organizes jobs into a hierarchy.

For example:

This is important because a salary band belongs to a level/grade, not simply to an individual employee.

The analyst considers job scope, complexity, decision-making, skills, experience, responsibility, and organizational impact.

3. Benchmark jobs against the market

Next, the analyst selects reliable "benchmark" jobs—roles that can be matched reasonably well to external salary surveys.

For example:

Company's Senior Financial Analyst → market survey's Senior Financial Analyst The analyst gathers market data for base salary, typically looking at the relevant industry, geography, company size, and job level. Modern compensation databases can provide thousands of benchmark jobs and allow filtering by geography and company characteristics.

The analyst then determines something like:

Market P50 = $95,000

If the company's philosophy is to pay at the 50th percentile, $95,000 becomes a candidate for that job's market value.

4. Group jobs into grades

Suppose several jobs have market values like:

• Analyst: $75K
• Financial Analyst: $78K
• HR Analyst: $76K
• Senior Analyst: $94K
• Senior Financial Analyst: $97K
• Senior HR Analyst: $95K

The first group might become Grade 6, with a midpoint around $76K.

The second might become Grade 7, with a midpoint around $95K.

This creates a structure rather than having a completely independent salary range for every job.

5. Establish the midpoint

The midpoint is generally the most important number in the band.

For example:

Grade 7 midpoint = $95,000 Conceptually, it represents what the company considers appropriate pay for someone who is fully competent in work at that level—not necessarily the average salary of the people currently occupying the jobs.

Companies often tie the midpoint to a selected market percentile. In WorldatWork's 2023 survey, 75% of organizations reported tying midpoints consistently to a single competitive market percentile.

6. Decide the range spread

Now the analyst determines how far the minimum and maximum should sit from the midpoint.

For example, suppose the company wants a 40% range spread.

A simplified structure might look like:

The exact methodology varies. Traditional structures historically tended to have narrower spreads, while market-based structures often use wider ranges. WorldatWork's survey definitions, for example, characterize traditional structures as roughly 20–40% spreads and market-based structures as roughly 30–80%.

7. Establish midpoint progression

The analyst also determines how much the midpoint increases from one grade to the next.

For example:

• G6 midpoint: $75K
• G7 midpoint: $95K → +26.7%
• G8 midpoint: $115K → +21.1%
• G9 midpoint: $135K → +17.4%

In a real structure, the progression would usually be designed more systematically so that levels reflect increasing job value.

This is one reason job architecture matters: the bands should represent meaningful differences in responsibility, rather than arbitrary salary numbers.

8. Slot employees into the bands

Once the bands exist, the analyst maps current employees into them.

For example:

Sarah — $87K Grade 7: $76K–$114K Midpoint: $95K Sarah is within the range and below midpoint.

The analyst would calculate her compa-ratio:

Compa-ratio = employee salary ÷ midpoint

So:

$87K ÷ $95K = 91.6%

That doesn't automatically mean Sarah is underpaid. The analyst considers experience, performance, skills, tenure, location, and other legitimate factors.

9. Analyze exceptions and equity

This is where a lot of the real compensation work happens.

The analyst looks for:

• Employees below minimum ("green circle")
• Employees above maximum ("red circle")
• Large unexplained pay differences
• Gender or other protected-group pay disparities
• Compression between managers and direct reports
• New hires being paid more than experienced employees
• Critical jobs falling behind the market
• Employees clustered at the top or bottom of ranges

The analyst may then recommend market adjustments, promotions, range changes, or other corrective actions.

10. Model the financial impact

Before implementing the bands, the analyst asks:

"What will this cost us?"

They might model:

• Current payroll vs. new structure
• Cost to bring employees to minimum
• Expected merit increases
• Promotion increases
• Hiring offers
• Geographic differentials
• Market adjustments
• Budget impact by department

This prevents HR from designing a theoretically perfect structure that the company can't afford.

11. Create administration rules

The bands aren't very useful unless managers know how to use them.

For example, the company might establish guidelines such as:

• New hires normally enter between minimum and midpoint.
• Highly experienced hires can enter above midpoint with justification.
• Employees near the top of the range receive smaller increases.
• Promotions generally move employees into the new grade's range.
• Employees below minimum receive priority adjustment.
• Exceptional performers can progress faster through the range.

The exact rules depend on the company's philosophy.

12. Refresh the structure

Salary bands aren't "set and forget."

Market rates move, inflation changes, talent shortages emerge, and the company's workforce changes. WorldatWork reported that 67% of surveyed organizations were adjusting base-pay structures annually in its 2022 survey, while its 2023 research highlighted market-rate changes and labor-market pressure as major reasons organizations modify structures.

So a compensation analyst periodically:

re-benchmarks → ages market data → evaluates the structure → adjusts midpoints/ranges → analyzes employee placement → recommends changes.

A simple example

Imagine a company has a Senior Software Engineer job.

Market data says:

• P25 = $145K
• P50 = $160K
• P75 = $178K

The company's philosophy is to target P50.

So the analyst starts with:

Midpoint = $160K

They establish a range around it, perhaps:

$136K – $184K

Then they might place employees like this:

The important insight is that the band doesn't mean everyone should make $160K. The midpoint establishes the market/reference point; the range gives the company room to differentiate employees based on legitimate factors.

In practice, the hardest parts aren't the arithmetic. They're choosing good market data, matching jobs correctly, creating defensible job levels, deciding the company's market position, and making sure employee pay is internally equitable. WorldatWork specifically emphasizes market-data integrity, job benchmarking, aging, blending, weighting, and other techniques in market pricing.

If you're learning compensation analysis, I'd think of the entire process as:

Job architecture → Market pricing → Grades → Midpoints → Range spreads → Employee placement → Equity analysis → Budget modeling → Ongoing maintenance.

12. Refresh the structure

Salary bands aren't "set and forget."

Market rates move, inflation changes, talent shortages emerge, and the company's workforce changes. WorldatWork reported that 67% of surveyed organizations were adjusting base-pay structures annually in its 2022 survey, while its 2023 research highlighted market-rate changes and labor-market pressure as major reasons organizations modify structures.

So a compensation analyst periodically:

re-benchmarks → ages market data → evaluates the structure → adjusts midpoints/ranges → analyzes employee placement → recommends changes.

A simple example

Imagine a company has a Senior Software Engineer job.

Market data says:

• P25 = $145K
• P50 = $160K
• P75 = $178K

The company's philosophy is to target P50.

So the analyst starts with:

Midpoint = $160K

They establish a range around it, perhaps:

A compensation analyst moves away from "vibes-based" compensation to build structured salary bands through a methodical, data-driven process. This process balances external market competitiveness with internal pay equity and budget limits.

The exact workflow a compensation analyst uses to build salary bands from scratch involves the following structured phases:

1. Establish the Job Architecture

Before looking at money, an analyst must map out the organization's structure.

• Job Analysis : Review job descriptions to evaluate the scope of responsibility, decision-making authority, and required skills for every role.
• Job Families : Group roles into functional departments or families (e.g., Software Engineering, Marketing, Customer Success).
• Job Leveling : Create clear hierarchical levels within those families (e.g., L1: Junior, L2: Mid, L3: Senior, L4: Principal).

2. Define the Compensation Philosophy

An analyst aligns the salary structure with the company's financial strategy and talent goals by defining a Compensation Philosophy . This answers a core strategic question: Where does the company want to position itself against competitors?

• Match the Market : Aim for the market 50th percentile.
• Lead the Market : Aim for the 75th or 90th percentile to attract premium talent.
• Lag the Market : Intentional positioning at the 25th percentile, often offsetting base salary with higher equity or bonuses.

3. Source and Filter External Market Data

Analysts do not rely on crowd-sourced public websites. They purchase reliable, employer-submitted salary surveys (e.g., Radford, Mercer, Willis Towers Watson). They then refine the data using specific filters:

• Company Size & Revenue : Sourcing data from peer organizations.
• Industry Specifics : Ensuring tech roles are benchmarked against tech companies.
• Geographic Differentials : Adjusting data based on cost of labor variations across local, national, or international remote zones.

4. Calculate the Salary Band Math

For each specific job level, the analyst uses the refined market data to calculate three distinct points: the Midpoint, the Spread, and the Minimum/Maximum bounds.

• The Midpoint (The Anchor) : Set at the exact market percentile designated by the company's philosophy (e.g., the 50th percentile market rate). This represents the target pay for a fully competent employee hitting expectations.
• The Range Spread (The Width) : The percentage width from the minimum to the maximum salary. The spread expands as the job hierarchy ascends because senior roles require more room for career progression within the same level. Standard spreads are:
  • Entry-level / Administrative : 20% to 30% spread
  • Mid-level Professional / Managerial : 30% to 45% spread
  • Executive / Highly Specialized : 50% to 60%+ spread

The Mathematical Formula

Once the analyst selects a midpoint and a spread, they calculate the exact boundaries using these formulas:

Minimum=Midpoint 1+(Spread 2)Minimum equals the fraction with numerator Midpoint and denominator 1 plus open paren the fraction with numerator Spread and denominator 2 end-fraction close paren end-fraction M i n i m u m=M i d p o i n t 1+(S p r e a d 2)

Maximum=Minimum×(1+Spread)Maximum equals Minimum cross open paren 1 plus Spread close paren M a x i m u m=M i n i m u m×(1+S p r e a d)

Example : An analyst establishes a $100,000 midpoint for a Senior Accountant role with a 40% range spread.

• Minimum:$1 0 0,0 0 0/1.2 0=$𝟖𝟑,𝟑𝟑𝟑
• Maximum:$8 3,3 3 3×1.4 0=$𝟏𝟏𝟔,𝟔𝟔𝟔
• Resulting Salary Band: $83,333 – $116,666

5. Evaluate Band Overlap and Internal Equity

• Healthy Band Overlap : The analyst ensures that the maximum of a lower pay level slightly overlaps with the minimum of the next level up. This provides flexibility to reward highly experienced or top-performing individuals without forcing an unearned promotion.
• Internal Equity Review : The analyst overlays current employee salaries onto the new bands to flag discrepancies.
  • Green Circle Rates : Employees paid below the new minimum. The analyst builds a budget plan to raise their pay immediately.
  • Red Circle Rates : Employees paid above the new maximum. The analyst may freeze their base salary increases, shifting their rewards toward one-time performance bonuses or equity grants until the market bands catch up.

6. Implementation, Maintenance, and Transparency

The analyst hands off the framework to recruiters for setting offer limits, and to HR leaders for annual compensation reviews. Because talent markets change constantly due to economic shifts and inflation, the analyst must benchmark and update these bands annually to prevent pay compression.

To tailor this information to your specific needs, let me know:

• Are you building these bands for a startup , a mid-sized firm , or an enterprise organization?
• Do you need assistance calculating geographic pay differentials for remote workers?
• Would it help to see a mock spreadsheet template demonstrating how job levels translate directly into minimums, midpoints, and maximums?

A compensation analyst usually builds salary bands by combining internal job levels with external market pay data. The goal is to create a structure that is internally consistent, competitive in the labor market, and practical for managers to administer.

A typical process looks like this:

1. Define the compensation philosophy

First, the company decides how it wants to pay relative to the market.

For example:

• Target the 50th percentile of the market → roughly market median
• Target the 60th–75th percentile → pay more aggressively to attract talent
• Target below market → compensate partly through bonuses, equity, benefits, etc.
• Use different market positions for different job families

This decision comes before building the ranges. WorldatWork describes the midpoint of a pay range as generally representing the company's competitive market value for the jobs in that range.

2. Build the job architecture

The analyst needs to determine which jobs belong at which organizational levels.

For example:

This isn't simply based on job titles. The analyst looks at factors such as scope, complexity, decision-making, knowledge, leadership responsibility, and organizational impact.

This is important because the salary structure should reflect the company's internal hierarchy, not just whatever salaries happen to exist today.

3. Benchmark jobs against the market

The analyst selects reliable compensation surveys and matches the company's jobs to external benchmark jobs.

Suppose the company has a Senior Financial Analyst role and the relevant market data says:

• 25th percentile: $82,000
• 50th percentile: $90,000
• 75th percentile: $99,000

If the company's philosophy is to target the market median, $90,000 becomes a candidate midpoint.

This is where job matching matters enormously. You don't want to match a company's relatively junior "Financial Analyst" to an external "Senior Financial Analyst" just because the titles sound similar.

4. Establish the midpoint for each grade

The midpoint is essentially the target salary for a fully competent employee in that grade.

For example:

The exact progression isn't arbitrary. The analyst looks at market data, differences in job value, career progression, and the company's pay philosophy.

In WorldatWork's 2023 survey, 75% of organizations reported tying their salary-range midpoints consistently to a competitive market percentile, with the 50th percentile being the predominant target.

5. Decide how wide each band should be

Now the analyst builds a minimum and maximum around the midpoint.

For example, suppose Grade 4 has a $77,000 midpoint:

Minimum: $65,450 Midpoint: $77,000 Maximum: $88,550 That's ±15% around the midpoint.

Another company might use a wider range:

$61,600 — $77,000 — $92,400 That's ±20%.

Generally, ranges become wider as jobs become more senior because there's more room for differences in experience, performance, expertise, and sustained contribution.

6. Check how the bands interact

The analyst doesn't evaluate each range independently. They look at the entire structure.

For example:

Notice that the ranges overlap.

That's intentional. An experienced employee at one level can earn more than a relatively new employee at the next level without necessarily being mispaid.

7. Test the structure against current employees

This is where the analyst starts finding problems.

They put every employee into the proposed band and calculate metrics such as:

Compa-ratio

Compa-ratio=Employee SalaryRange Midpoint\text{Compa-ratio} = \frac{\text{Employee Salary}}{\text{Range Midpoint}}

So someone earning $72,000 in a band with a $80,000 midpoint has:

72/80=0.9072/80 = 0.90

or a 90% compa-ratio.

The analyst might then investigate employees who are unusually low or high in their ranges.

They also look for:

• Pay compression
• Employees below the minimum
• Employees above the maximum
• Gender/race or other legally relevant pay-equity patterns
• Inconsistent pay between employees doing comparable work
• Managers earning less than their direct reports
• Critical jobs where the market has moved substantially

8. Model the financial impact

This is a big part of the job.

The analyst asks:

"If we implement these bands, what happens to payroll?" For example, if 75 employees fall below their new minimums, bringing everyone to minimum might cost $900,000.

The analyst may therefore model several scenarios:

• No immediate adjustment
• Bring everyone to minimum
• Correct only significant compression/equity issues
• Phase adjustments over two years
• Adjust ranges now but address individual salaries during merit cycles

9. Get leadership approval

The compensation analyst usually presents something like:

"We recommend a 6-grade structure, with midpoints positioned at the 50th market percentile and range spreads from 30% to 50%. This would place 82% of employees within their appropriate ranges and require approximately $X in immediate adjustments." HR leadership, Finance, and executives then decide whether to approve it.

10. Maintain the bands

Salary bands aren't "set and forget."

The analyst periodically reviews:

• Market movement
• Recruiting difficulty
• Turnover
• Inflation/wage trends
• Internal equity
• Pay transparency requirements
• Geographic differences
• Changes in the company's business strategy

WorldatWork's current research notes that 73% of organizations adjust their compensation ranges annually, illustrating how commonly structures are reviewed.

---

A simple example

Imagine a company has three engineering levels.

Market data suggests:

• Engineer I: $70K midpoint
• Engineer II: $90K midpoint
• Senior Engineer: $115K midpoint

The company chooses approximately ±15% ranges:

Now suppose you have an Engineer II making $82K.

Their compa-ratio is:

$82K ÷ $90K = 91%

That's useful information, but it doesn't automatically mean the person should receive a raise to $90K. The analyst would consider experience, performance, time in role, market conditions, internal equity, and the company's pay-progression philosophy.

So, in practice, building salary bands is less about finding three numbers (min/mid/max) and more about building a coherent system connecting job architecture, market data, pay philosophy, employee positioning, and budget.

A useful mental model is:

Job architecture → Market benchmarking → Market position → Midpoints → Range widths → Employee placement → Equity/budget analysis → Governance

That is essentially the compensation analyst's workflow.

Notice that the ranges overlap.

That's intentional. An experienced employee at one level can earn more than a relatively new employee at the next level without necessarily being mispaid.

7. Test the structure against current employees

This is where the analyst starts finding problems.

They put every employee into the proposed band and calculate metrics such as:

Compa-ratio

Compa-ratio=Employee SalaryRange Midpoint\text{Compa-ratio} = \frac{\text{Employee Salary}}{\text{Range Midpoint}}

So someone earning $72,000 in a band with a $80,000 midpoint has:

72/80=0.9072/80 = 0.90

or a 90% compa-ratio.

The analyst might then investigate employees who are unusually low or high in their ranges.

They also look for:

• Pay compression
• Employees below the minimum
• Employees above the maximum
• Gender/race or other legally relevant pay-equity patterns
• Inconsistent pay between employees doing comparable work
• Managers earning less than their direct reports
• Critical jobs where the market has moved substantially

8. Model the financial impact

This is a big part of the job.

The analyst asks:

"If we implement these bands, what happens to payroll?" For example, if 75 employees fall below their new minimums, bringing everyone to minimum might cost $900,000.

The analyst may therefore model several scenarios:

• No immediate adjustment
• Bring everyone to minimum
• Correct only significant compression/equity issues
• Phase adjustments over two years
• Adjust ranges now but address individual salaries during merit cycles

9. Get leadership approval

The compensation analyst usually presents something like:

"We recommend a 6-grade structure, with midpoints positioned at the 50th market percentile and range spreads from 30% to 50%. This would place 82% of employees within their appropriate ranges and require approximately $X in immediate adjustments." HR leadership, Finance, and executives then decide whether to approve it.

10. Maintain the bands

Salary bands aren't "set and forget."

The analyst periodically reviews:

• Market movement
• Recruiting difficulty
• Turnover
• Inflation/wage trends
• Internal equity
• Pay transparency requirements
• Geographic differences
• Changes in the company's business strategy

WorldatWork's current research notes that 73% of organizations adjust their compensation ranges annually, illustrating how commonly structures are reviewed.

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A simple example

Imagine a company has three engineering levels.

Market data suggests:

Building a salary band (or grade structure) is a core strategic task for a compensation analyst. It balances internal equity (fair pay relative to peers) with external market competitiveness (attracting and retaining talent).

Here is the step-by-step process a compensation analyst uses to build a robust salary structure:

• Job Analysis and Evaluation : Assess and catalog every role in the organization. Analysts review job descriptions, duties, and responsibilities, then use a formal job evaluation method (like point-factor rating or slotting) to score and rank jobs by internal value and complexity.
• Market Pricing : Gather external benchmark data from reliable compensation surveys (such as Mercer, Radford, or WTW). The analyst matches internal jobs to equivalent market jobs and adjusts the data based on geography, company size, and industry to find the true market median (the 50th percentile).
• Creating Salary Grades : Group jobs with similar internal value and market worth into the same "grade" or "band." For example, all mid-level software engineers and financial analysts might fall into Grade 5, while managers fall into Grade 7.
• Establishing the Midpoint : Set the midpoint of each salary grade to match the weighted average market rate (market median) for the jobs in that grade. This ensures the middle of your pay range reflects current market pricing.
• Determining the Spread and Range : Define the distance between the minimum and maximum of the band (the spread), which typically widens as you move up the organizational ladder.
  • Entry-level/Operational bands: Narrower spreads (around 40% - 50%) because there is less variance in performance and skills.
  • Executive/Leadership bands: Wider spreads (often 60% - 100%) to accommodate greater pay differentiation based on individual performance and strategic impact.
  • Formula: Minimum = Midpoint÷1+S p r e a d 2 and Maximum = Minimum × (1 + Spread).
• Calculating Range Overlap and Progression : Ensure smooth progression between adjacent grades. Midpoint progression (the percentage difference between the midpoint of Grade 1 and Grade 2) usually ranges from 10% - 15% for lower bands and increases for higher bands. Overlap between bands allows employees to grow in their role without hitting an artificial salary ceiling immediately upon promotion.
• Cost Modeling and Implementation : Run a "compa-ratio" analysis to see where current employees fall within the new bands. Identify outliers—employees who are below the minimum (green-circled) or above the maximum (red-circled)—and budget for the adjustments required to bring them into alignment before rolling out the structure to leadership and employees.

Would you like to dive deeper into calculating range spreads or determining compa-ratios for your specific team size?

A compensation analyst usually builds salary bands by combining internal job value with external market pay. The basic idea is: jobs that are similar in scope and value belong in the same band, and the band is priced to the company’s compensation philosophy.

Here’s the typical process:

1. Establish the compensation philosophy

Before calculating ranges, the company decides things like:

• Do we target the 50th percentile of the market, or 60th/75th?
• Do we want to lead, match, or lag the market?
• Will the philosophy differ for hard-to-hire jobs?
• Do we have geographic pay differences?
• How much salary progression should employees have within a job?

The 50th percentile is a very common midpoint target; WorldatWork reported that 75% of surveyed organizations tied their salary-structure midpoints consistently to a single market percentile, with the 50th percentile predominant.

2. Define and evaluate the jobs

The analyst cleans up the job architecture:

Job family → career level → job → grade/band

For example:

The analyst considers factors such as scope, complexity, decision-making, skills, responsibility, and organizational impact.

This is important because you don't want to put jobs into bands simply because their titles sound similar. A salary structure is supposed to reflect both internal equity and external market value.

3. Benchmark jobs against the market

The analyst identifies reliable "benchmark" jobs—jobs that are common enough in the market to have good survey data.

They might pull data from compensation surveys and look at:

• 25th percentile
• 50th percentile
• 75th percentile
• Industry
• Company size
• Geography
• Revenue
• Relevant talent market

Then they determine the company's target market value.

For example, suppose the market data for a Senior Financial Analyst says:

• P25: $78,000
• P50: $88,000
• P75: $98,000

If the company's philosophy is to pay at market median, the analyst might establish an $88,000 midpoint.

Market pricing is a central part of designing a market-based structure.

4. Group jobs into salary bands

You generally don't create a completely separate salary range for every job.

Instead, jobs with reasonably similar market values and internal levels get grouped into a band.

For example:

This creates an actual salary structure rather than a collection of individual market rates. A formal pay structure consists of ranges/grades with minimums, midpoints, and maximums.

5. Calculate the range around each midpoint

This is where the "band" gets created.

Suppose the midpoint is $80,000 and the company chooses a 40% range spread.

One simple symmetrical approach is:

• Minimum = $80,000 × 80% = $64,000
• Midpoint = $80,000
• Maximum = $80,000 × 120% = $96,000

So the band is:

$64,000 – $80,000 – $96,000

The appropriate spread depends on the job level and philosophy. Lower-level jobs often have narrower ranges, while senior jobs can have wider ranges because employees can develop substantially without necessarily moving to another job.

6. Establish progression between bands

The analyst then determines how much the midpoint increases from one band to the next.

For example:

• Band 3 midpoint: $60K
• Band 4 midpoint: $72K → 20% increase
• Band 5 midpoint: $88K → 22% increase
• Band 6 midpoint: $108K → 23% increase

The goal is to create a logical progression rather than arbitrary jumps.

7. Test the structure against current employees

This is a huge part of the analyst's job.

They load every employee into the proposed structure and examine things such as:

Compa-ratio

[ \text{Compa-ratio} = \frac{\text{Employee Salary}}{\text{Band Midpoint}} ]

If someone earns $72,000 and their midpoint is $80,000:

[ 72,000 / 80,000 = 90% ]

So their compa-ratio is 0.90.

The analyst looks for patterns such as:

• Employees below the minimum
• Employees above the maximum
• Large concentrations below midpoint
• Compression between levels
• Pay differences that aren't explained by legitimate factors
• Possible internal-equity problems
• Employees whose pay is inconsistent with experience/performance
• Jobs incorrectly assigned to bands

8. Model the financial impact

Then comes the uncomfortable spreadsheet.

The analyst might calculate:

"If we move everyone below the minimum up to the minimum, what will that cost?"

They may also model:

• New-hire salaries
• Promotions
• Merit increases
• Market adjustments
• Geographic differentials
• Compression corrections
• Pay-equity adjustments

This turns the theoretical structure into something the company can actually afford.

9. Validate the structure

The analyst typically performs several checks:

External competitiveness:
Are our ranges reasonably aligned with the labor market?

Internal equity:
Are similarly valued jobs treated consistently?

Range penetration:
Where do employees sit between minimum and maximum?

Compa-ratio:
How does employee pay compare with the midpoint?

Compression:
Is a new hire earning nearly as much as an experienced employee's manager?

Pay equity:
Are there unexplained pay differences across comparable employees?

Business practicality:
Can managers actually use these ranges for hiring, promotions and raises?

10. Implement and maintain it

Salary structures aren't "set and forget."

Market rates change, so compensation teams periodically update the structure. WorldatWork's survey found that 73% of organizations adjust compensation ranges annually.

For example, if the company's market movement assumption is 3%, it might move the structure:

2026 midpoint: $80,000
2027 midpoint: $82,400

But sophisticated teams don't blindly apply the same percentage everywhere. They examine updated market data and determine whether particular jobs or job families have moved differently.

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A simple example

Imagine a company has three levels of software engineers:

Engineer I → Engineer II → Senior Engineer

Market data suggests the company wants to target the 50th percentile:

• Engineer I market: $75K
• Engineer II market: $95K
• Senior Engineer market: $120K

The analyst might create:

Now imagine a Senior Engineer currently makes $105K.

Their compa-ratio is:

$105K ÷ $120K = 87.5%

The analyst doesn't automatically conclude "give them a raise." Instead, they investigate why they're at 87.5%—perhaps they're relatively new to the level, perhaps their performance is developing, or perhaps there is an equity issue.

That's the important distinction: the band is a framework for making pay decisions, not an automatic salary calculator.

In practice, the analyst's workflow is essentially:

Comp philosophy → job architecture → market benchmark → market target → job/band grouping → midpoint → range width → employee mapping → equity/compression analysis → cost modeling → implementation → annual review.

WorldatWork describes salary structures similarly: the midpoint generally represents competitive market value, while the range provides the framework for administering base pay.

Building a salary band (or salary range) is a core responsibility for a compensation analyst . It ensures internal equity (fair pay for similar roles within the company) and external competitiveness (attracting and retaining talent in the broader market).

Here is the step-by-step process a compensation analyst uses to build salary bands:

1. Job Analysis and Evaluation

• Job documentation : Review job descriptions to understand duties, responsibilities, required skills, and qualifications for every role in the organization.
• Job leveling/scoring : Evaluate and rank jobs using a methodology like the Hay Group method or point-factor evaluation. This groups roles with similar internal value into specific job levels or grades (e.g., Grade 1 for entry-level, Grade 10 for directors).

1. Market Pricing and Data Gathering

• Benchmark jobs : Identify key roles in the company that have direct equivalents in the external labor market.
• Market surveys : Purchase or access compensation data from reputable third-party providers (such as Mercer, Radford, or WTW) to see what competitors pay for identical or similar roles.
• Data alignment : Adjust the raw market data based on the company's target geography, company size, and industry sector.

1. Defining the Compensation Philosophy

• Market posture : Decide where the company wants to position its pay relative to the market median (the 50th percentile). For example, a tech startup might target the 75th percentile to aggressively attract talent, while a non-profit might target the 40th or 50th percentile.
• Effective date : Establish the target date for the data (accounting for wage inflation to project what the market will pay at a specific point in the future).

1. Establishing the Midpoint

• Midpoint calculation : The midpoint of a salary range typically represents the market rate for a fully proficient, competent employee performing that job level.
• Grade midpoints : Set the dollar value for the midpoint of each job grade based on the benchmark market data gathered in Step 2.

1. Calculating the Range Spread (Minimum and Maximum)

• Range spread definition : The spread is the distance between the minimum and maximum of the band, expressed as a percentage of the midpoint. Formula: M a x i m u m−M i n i m u m M i d p o i n t×1 0 0.
• Varying spreads : Lower-level jobs usually have narrower spreads (e.g., 30$-40$) because employees progress through them faster. Senior executive or specialized roles have wider spreads (e.g., 50$-60$ or more) because it takes longer to reach mastery and peak performance.
• Math formulas:
  • M i n i m u m=M i d p o i n t 1+(S p r e a d÷2)
  • Maximum = Midpoint × (1 + (Spread ÷ 2))

1. Reviewing and Testing the Bands

• Cost modeling : Test the new bands against current payroll data. Identify any "outliers"—employees whose current pay falls below the new minimum (underpaid/green-circle) or above the maximum (overpaid/red-circle).
• Grade overlap : Check the overlap between adjacent grades (e.g., ensuring the maximum of Grade 4 overlaps with the midpoint of Grade 5) to allow for promotional increases without massive pay shocks.

1. Implementation and Governance

• Stakeholder buy-in : Present the proposed structure to HR leadership, finance, and executive management for approval.
• Communication and training : Roll out the structure to managers, training them on how to use salary bands for hiring offers, merit increases, and promotions.
• Annual maintenance : Review and adjust the bands annually (typically applying a structural budget increase like 2$-4$) to keep pace with inflation and market shifts.

Would you like to explore how to calculate specific numbers for a sample salary band, or do you need help addressing outliers (green-circle/red-circle pay) within an existing structure?

A compensation analyst typically builds salary bands by combining external market data, internal job leveling, and a company’s compensation philosophy. The goal is to create ranges that are competitive enough to hire and retain people, internally equitable, affordable, and usable by managers.

A typical process looks like this:

1. Establish the compensation philosophy

First, the company decides where it wants to pay relative to the market:

• 50th percentile (median): roughly market-competitive
• 60th–65th: moderately above market
• 75th: intentionally leading the market
• Below market: potentially appropriate if the company compensates through equity, benefits, mission, etc.

The philosophy may differ by job family—for example, paying engineers at the 65th percentile while targeting the 50th for corporate functions.

2. Level the jobs

Before building bands, you need to know how jobs relate to one another.

A compensation analyst might establish levels such as:

This isn't simply based on job titles. The analyst looks at scope, complexity, decision-making, required skills, experience, impact, and management responsibility.

Companies may use formal job evaluation, market pricing, or a combination of the two.

3. Gather market data

The analyst then obtains salary survey data for comparable jobs.

For example, suppose the market data for a Financial Analyst III looks roughly like:

• 25th percentile: $78,000
• 50th percentile: $86,000
• 75th percentile: $96,000

If the company's philosophy is to target the market median, $86,000 becomes a candidate midpoint for that level.

The analyst needs to make sure the comparison is genuinely apples-to-apples—industry, geography, company size, job scope, and level all matter.

4. Create the salary grades/bands

Instead of creating a completely independent range for every job, companies usually group comparable jobs into grades.

For example:

The midpoint is generally the most important number because it represents the company's intended pay level for a fully competent employee in that grade.

The minimum and maximum are then established using a range spread.

For example, a range might be 80%–120% of midpoint:

Midpoint = $100,000
Minimum = $80,000
Maximum = $120,000

That's a common conceptual structure, although actual spreads vary considerably by organization and level.

5. Determine how much the bands overlap

This is an important—and often overlooked—part of the design.

Suppose:

• Grade 9 = $70K–$105K
• Grade 10 = $82K–$123K

There is substantial overlap.

That's intentional. A highly experienced person in a lower-level role can potentially earn more than a newly promoted person in the next level.

The analyst balances range spread, midpoint progression, and overlap so the structure reflects increasing job responsibility without creating artificial pay cliffs.

6. Map employees into the bands

Now comes the painful part: comparing the structure to actual employee salaries.

Suppose the new band for an Analyst III is:

$80K–$120K

And the employees are:

• Alice: $82K
• Bob: $91K
• Carlos: $101K
• Dana: $119K
• Evan: $126K

Evan is above range.

The analyst investigates why. Perhaps Evan is highly experienced, has specialized skills, or is simply overpaid relative to the new structure.

Likewise, someone at $82K may be technically within the range but may need attention if comparable employees are substantially higher.

7. Calculate compa-ratios

One of the key metrics is the compa-ratio:

Compa-ratio = Employee salary ÷ Range midpoint

If the midpoint is $100,000:

• $80K salary → 80% compa-ratio
• $90K → 90%
• $100K → 100%
• $110K → 110%
• $120K → 120%

This helps compensation teams understand where employees sit within their ranges.

A common philosophy might be:

• Below 85%: relatively new/inexperienced or potentially underpaid
• 85–95%: developing toward full proficiency
• 95–105%: fully competent/market aligned
• 105–115%: highly experienced/high performer
• 115%+: exceptional circumstances or potential review

Those percentages aren't universal rules—the company establishes its own guidelines.

8. Test internal equity

This is where the analyst asks questions such as:

• Are women and men being paid differently after accounting for legitimate factors?
• Are employees doing substantially similar work in similar ranges?
• Are new hires making more than experienced incumbents?
• Are managers earning appropriately relative to their direct reports?
• Are certain departments systematically paid differently?
• Are people clustered at the bottom or top of ranges?
• Are there signs of salary compression?

Salary structure design is therefore not just a market-data exercise. Internal equity is a major consideration.

9. Check the budget

This is where compensation theory meets reality.

Imagine the analyst creates a beautiful new structure that would require $2 million in salary adjustments to bring everyone appropriately into range.

Finance may say: "We have $500K."

The analyst then has to prioritize:

1. Employees below minimum
2. Significant pay-equity issues
3. Severe market gaps
4. Compression/inversion problems
5. Critical retention issues
6. Other adjustments

SHRM specifically notes that analysts should compare proposed ranges with existing employee pay before implementation, because otherwise the new ranges can create compression problems that the company cannot afford to fix.

10. Decide how employees move through the range

A salary band isn't just a hiring range. The company needs rules for managing employees within it.

For example:

New hire → typically 85–95% of midpoint

Fully proficient → around midpoint

Highly experienced/high performer → 100–115%

Top of range → limited additional base-pay growth; potentially use bonuses/equity instead

The company might then build a merit matrix that combines performance rating with compa-ratio.

11. Validate and implement

Finally, the analyst models the structure against:

• Current employees
• Open positions
• Recruiting offers
• Promotions
• Merit increases
• Turnover
• Market movement
• Geographic differences
• Pay equity
• Budget

Once approved, the bands become the framework recruiters and managers use for offers, promotions, and annual compensation decisions.

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A simple example

Imagine a company wants to create a band for Senior Financial Analyst.

Market data says:

50th percentile = $95K

The company targets the 50th percentile and chooses a $76K–$114K range around the $95K midpoint.

Then it evaluates its five employees:

The structure itself is relatively straightforward.

The real compensation analyst work is figuring out whether those five salaries make sense.

Employee A might be a recent promotion. Employee E might have 15 years of specialized experience. Or there might be an unexplained pay-equity issue. The band provides the framework; the analyst uses data and judgment to determine what should happen inside it.

One modern wrinkle is that compensation teams increasingly aren't treating market survey data as the only answer. WorldatWork reported in 2026 that organizations are putting greater weight on factors such as pay transparency, equal-pay expectations, and broader internal considerations alongside market data.

In short:

Job leveling → market pricing → choose midpoint → establish range spread → create grades → test overlap → map employees → analyze compa-ratios/equity → model budget → implement → refresh annually.

That's essentially the compensation analyst's salary-band-building workflow.

A compensation analyst typically builds salary bands by combining market data, internal job structure, and the company’s pay philosophy. The goal is to create ranges that are competitive enough to hire and retain people while maintaining internal fairness.

A common process looks like this:

1. Define the company’s compensation philosophy

Before calculating numbers, the analyst determines the company’s target position against the market:

• Lead market: pay above competitors (for example, target the 75th percentile)
• Match market: pay around the median (50th percentile)
• Lag market: pay below market but potentially offset with other rewards

This decision determines where salary range midpoints are anchored.

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2. Build a job architecture

The analyst organizes jobs into a consistent structure:

• Job families (Engineering, Finance, Sales, HR, etc.)
• Career levels (Associate, Senior, Manager, Director, etc.)
• Job grades (for example, Grade 1–15)

Roles with similar internal value and market value are grouped into the same grade or band.

Example:

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3. Collect market salary data

They benchmark jobs against external salary surveys and compensation databases.

They match company roles to “benchmark jobs,” such as:

• Software Engineer II
• Financial Analyst
• HR Business Partner
• Sales Manager

The analyst looks at market percentiles:

• 25th percentile = lower market
• 50th percentile = median market
• 75th percentile = higher market

The analyst chooses the relevant market point based on the company’s pay strategy.

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4. Set the midpoint for each band

The midpoint represents the target salary for a fully proficient employee in that grade.

Example:

Market data says a Senior Accountant role is worth $90,000 at the company’s chosen market position.

The analyst sets:

• Midpoint = $90,000

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5. Create the range around the midpoint

The analyst applies a range spread to create the minimum and maximum.

A simple formula:

• Minimum = midpoint ÷ (1 + range spread)
• Maximum = midpoint × (1 + range spread)

Example with a 40% spread:

• Minimum: ~$75,000
• Midpoint: $90,000
• Maximum: ~$105,000

Many organizations use narrower ranges for entry-level roles and wider ranges for senior roles because senior employees may have more room for skill growth without promotion.

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6. Check overlap between bands

Salary bands usually overlap so employees can progress without every promotion requiring a large jump.

Example:

This allows experienced employees in one grade to earn more than newer employees in the next grade.

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7. Test internal equity

The analyst compares current employees against the new structure:

• Are similar jobs paid similarly?
• Are women or underrepresented groups disproportionately below market?
• Are long-tenured employees above the range maximum?
• Are new hires being paid more than experienced employees (pay compression)?

They may calculate compa-ratio:

[ \text{Compa-ratio} = \frac{\text{Employee salary}}{\text{Band midpoint}} ]

Example:

$85,000 salary ÷ $100,000 midpoint = 85% compa-ratio

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8. Validate financially

Before implementation, compensation and finance teams model:

• Cost to move employees into ranges
• Hiring impact
• Promotion budgets
• Annual merit increase effects

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9. Maintain the bands

Salary bands are not permanent. Analysts typically refresh them annually or periodically because labor markets change. They may adjust:

• Midpoints (“market movement”)
• Range widths
• Job levels
• Geographic differences

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A simplified example:

Company goal: Pay at the 50th percentile
Role: Data Analyst II
Market midpoint: $85,000
Range spread: 50%

Final band:

• Minimum: $68,000
• Midpoint: $85,000
• Maximum: $102,000

A new analyst might enter near the minimum, a fully productive analyst near the midpoint, and a highly experienced performer near the top of the range.

In practice, compensation teams usually use spreadsheets or compensation software, salary surveys, regression analysis, and job evaluation methods rather than manually creating each band one at a time.