Pay Ranges Explained | Part One
How to Choose the Right Pay Structure
Written by Clay Johnson, MS, CCP, SHRM-SCP Director, Compensation & Rewards Consulting
Your people are your biggest investment. And for many organizations, base pay is the largest and most visible part of that investment.
That makes pay ranges a significant tool in administering your people investment. They help organizations define how jobs are valued, how pay decisions are made, and how compensation stays aligned with both the market and the needs of the business. But like many tools in compensation, pay ranges are often misunderstood.
A pay range is not just a minimum, midpoint, and maximum in a spreadsheet. It is a decision-making framework. It tells managers, employees, recruiters, finance leaders, and HR teams how the organization thinks about pay. It creates boundaries for consistency and fairness, while still allowing room for judgment.
Used well, pay ranges bring structure, discipline, transparency, and flexibility. Used poorly, they become little more than decorative guardrails—visible on paper, but ignored in practice.
The challenge is that there is no single “best” type of pay structure.
Choosing a pay structure is a bit like choosing a pair of shoes. Running shoes are great if you are training for a race. Dress shoes are perfect for a formal event. Hiking boots are helpful on rough terrain. Flip-flops are ideal in the right setting and completely wrong in another. Choosing the right shoe depends on where you’re heading. The context matters.
The same is true with pay ranges. The right structure is not necessarily the most popular or the most sophisticated. It is the one that best fits your organization’s environment, goals, talent strategy, and ability to administer it well.
Selecting the Right Type of Pay Range
One of the biggest choices an organization makes in base pay design is the type of structure it will use. This decision influences nearly every downstream pay decision: how jobs are priced, how employees move through ranges, how managers make decisions, how promotions work, and how the organization balances internal equity with external competitiveness.
Let’s explore the most common approaches, including their pros and cons.
Traditional Pay Grades
Many organizations use traditional pay grades. These are structured levels with defined pay ranges (i.e., a minimum, midpoint, and maximum), often tied to job evaluation, career architecture, or market pricing.
This approach works well when an organization needs:
- consistency,
- control,
- and clear progression.
Traditional pay grades give employees and managers a visible framework. It helps HR administer pay decisions with discipline. It can also support career pathing because employees can see how roles move from one level to the next.
Traditional pay grades are especially useful in organizations with established job families, clear hierarchies, and a desire for internal consistency.
But every approach has tradeoffs. If roles are changing quickly, traditional grades can start to feel restrictive. If the business is highly fluid, the structure may require frequent exceptions. If the organization has a wide variety of niche roles, it may be difficult to fit every job neatly into the same grade framework.
Traditional grades are like a well-organized neighborhood with clearly marked streets. They make it easier to know where you are and where you can go next. But if the city is expanding rapidly, the map needs regular updates.
Broadband Pay Structures
Some organizations use broadbands, which are compensation structures with fewer and wider salary ranges.
Broadbands can create flexibility and may work well in flatter organizations, fast-moving environments, or companies where career progression is driven more by expanding scope, capability, or contribution than by moving through many narrow levels.
A broadband structure can reduce the administrative burden of maintaining many small pay grades. It may also give managers more room to reward employees without requiring frequent promotions or title changes.
But broadbands also require more judgment. With fewer boundaries, there is more room for interpretation. That can be useful when managers are well trained and pay decisions are carefully governed. It can be risky when managers lack guidance, when performance expectations are unclear, or when the organization has not defined what should drive movement within the band.
Broadbands trade precision for flexibility. That tradeoff may be exactly what some organizations need. But without clear guidelines, broadbands can become a compensation free-for-all. Two employees in similar roles may end up paid very differently, not because of performance, skills, or market factors, but because of differences in manager judgment.
Flexibility is valuable, but flexibility without discipline can create inconsistency.
Job-Based Pay Ranges
A growing number of organizations use job-based ranges, where individual jobs are typically priced directly to the external market and each job has its own pay range. This approach can be useful when an organization competes for specialized talent or needs to be precise in how it pays certain roles. It allows compensation to be more responsive to the market, especially for jobs where talent supply and demand shift quickly.
For example, a company hiring software engineers, cybersecurity specialists, sales roles, healthcare professionals, or other hard-to-fill positions may need ranges that closely reflect the market value of those specific jobs. Job-based ranges also help avoid forcing dissimilar jobs into the same pay grade simply because they appear to be at a similar internal level.
The challenge is that internal consistency can become harder to maintain. If every role is priced independently, the structure may feel less like a coherent compensation framework and more like a collection of separate market decisions. Employees may struggle to understand job relationships, managers may find career progression harder to explain, and HR may have difficulty maintaining a clear internal job hierarchy.
This is where compensation design requires balance. Pay structure design should not be treated as a false choice between external competitiveness and internal equity. Most organizations need some combination of both. The market matters, but so does the organization’s internal view of job worth.
Market data is critical, but it is still imperfect. It is a sample. A snapshot in time. It needs to be interpreted in the context of the organization’s jobs, career paths, promotion practices, internal equity, and compensation philosophy.
Step Pay Structures
In some environments, organizations use step structures. These are common in public sector, education, union, healthcare, and other environments where progression is often tied to tenure, credentials, or clearly defined service milestones.
Step structures create transparency and predictability. Employees can often see exactly how their pay will progress over time. Managers may have little or no discretion, which can reduce perceptions of favoritism and improve consistency in compensation administration.
But step structures also limit flexibility. They can make it harder to differentiate pay based on performance, skills, or market movement. They may also create challenges when the organization needs to respond quickly to talent shortages or reward exceptional contribution.
A step structure is like a train schedule. Everyone knows the route and the stops. That predictability is valuable. But if someone needs to move faster, take a different route, or respond to changing conditions, the structure may not allow much room to maneuver.
The Right Structure Is the One That Fits
None of these structures is inherently better than another. Each of these structures can work well and each can create challenges. Understanding each structure’s strengths and limitations clarifies which approach will best serve your needs.
- Traditional grades provide structure, but can become rigid.
- Broadbands provide flexibility, but can create inconsistency.
- Job-based ranges provide market precision, but can weaken internal alignment.
- Step structures provide predictability, but can limit differentiation.
This is why the right question is not, “Which structure is best?” The better question is, “Which structure best fits what we need this structure to do?”
An organization with clearly defined jobs, multiple career levels, and a strong desire for consistency may benefit from traditional pay grades. A fast-growing company with evolving roles may need the flexibility of broader bands. An organization competing for specialized talent may need job-based ranges for certain roles. An employer with a highly transparent or collectively bargained environment may need step structures.
The decision should be deliberate, not accidental.
It should also be practical. A structure that looks impressive but cannot be administered well will create more problems than it solves. Compensation teams should consider not only the design, but also the organization’s ability to maintain it, explain it, govern it, and use it consistently.
In complex or multi-faceted companies, the right approach may be a combination of structures. Traditional pay ranges for the stable Operations function and job-based ranges for the agile Research & Development unit.
Selecting a pay structure is critical decision. But it’s important to remember that your structure does not have to be your forever structure. Compensation structures should evolve as the business evolves.
There is no single best structure. Each has its pros and cons. The right approach is the one that best serves your needs. Do your due diligence. Ask thoughtful questions. Decide. Build. Implement. Assess. Revise.
In Part Two of this series, we’ll cover how to use your pay structure effectively.
