Building Compensation Ranges: A Step-by-Step Guide

1. Attain Market Data

• Source Reliable Data: Collect compensation benchmarks from trusted salary surveys or market data providers, ideally aligned to your industry, company size, and geographies. Check out Pequity's Marketpulse tool!

• Adjust for Geography: Normalize salaries using cost-of-labor differentials across regions.

• Refresh Often: Update your benchmarks at least annually to stay competitive.

2. Match Employees to Closest Job Benchmark/Role

• Establish Guidelines: Match jobs based on responsibilities, scope, and level — not just titles.

• Benchmark by Function and Level: Ensure external matches align with your internal career levels (IC, manager, director, etc.).

• Blend When Needed: Create a composite benchmark for hybrid or unique jobs by blending multiple data sources.

3. Consider Inversion & Smoothing

• Inversion Check: Confirm senior roles do not benchmark lower than junior roles due to market quirks.

• Smoothing: Create logical pay progressions within job families so each level builds consistently.

• Blended Families: When necessary, design your own job families by combining market data and internal leveling philosophy.

4. Define Midpoints

• Anchor the Market Rate: The midpoint represents the typical pay for a fully proficient employee.

• Smooth Across Levels: Review midpoints within a family to ensure they scale logically with responsibility.

5. Apply Range Spread

• Standard Spread: Apply ±10% (20% total spread) around each midpoint. Example: a $100K midpoint → $80K–$120K range.

• Adjust by Level: Narrower spreads may fit junior roles; wider spreads may fit senior roles where pay varies more.

• Balance Flexibility: The spread gives managers room to reward high performers while keeping ranges consistent.

6. Apply Ranges to Employees in Pequity

• Assign Employees: Map each employee to the correct job family and level.

• Run Comparisons: Use Pequity to analyze compa-ratios (employee pay vs. midpoint).

• Spot Risks: Identify employees below range (potential retention issues) or above range (possible overpayment).

• Plan Adjustments: Build a compensation adjustment strategy aligned with budget, equity goals, and retention needs.

Key Terms

Geo (Geography Differential)

A location-based adjustment factor for compensation ranges, reflecting cost-of-labor differences across regions.

Level

An internal hierarchy marker for responsibility and impact (e.g., Analyst → Manager → Director). Each level ties to its own midpoint and range.

Midpoint

The central reference point of a pay range. Typically represents the market rate for a fully proficient employee.

Compa-Ratio

A ratio comparing an employee’s actual pay to their range midpoint:

Compa-Ratio=Employee SalaryMidpoint\text{Compa-Ratio} = \frac{\text{Employee Salary}}{\text{Midpoint}}Compa-Ratio=MidpointEmployee Salary​

• <1.0: Paid below midpoint (potential risk).

• ≈1.0: Paid at market rate.

• >1.0: Paid above midpoint (possible overpayment).

✅ With these steps and definitions, you’ll have a structured, market-aligned approach to setting compensation ranges that supports fairness, transparency, and consistency.