How to Create a Salary Structure Design in 2025

A well-designed salary structure is essential for organizations aiming to attract, retain, and motivate top talent. As we go in 2025, trends indicate that salary budgets are stabilizing, with planned increases of 3.5% in the U.S. and 3.3% in Canada, driven by competition for labor and economic conditions. Additionally, pay transparency laws are expanding, with 21 U.S. states requiring pay ranges in job postings by 2025.

This comprehensive guide explores what a salary structure is, its types, how to create a salary structure design, and best practices to ensure it remains competitive and equitable.

What is a salary structure?

A salary structure, also known as a pay structure or compensation structure, is a systematic framework that determines employee compensation. It includes components such as base salary, allowances, bonuses, and benefits, organized into pay grades with defined salary ranges featuring minimum and maximum salaries. This structure ensures that pay levels align with job responsibilities, experience, and market-based standards, promoting fair compensation and consistency across the organization.

Benefits for organizations

A well-designed salary structure offers several advantages for employers:

• Ensures pay equity: Grouping jobs into pay grades with minimum and maximum salaries, organizations maintain internal equity, ensuring employees in the same pay grade are paid fairly.

• Facilitates budget management: A structured approach to managing compensation helps control costs and supports financial planning.

• Attracts and retains talent: Competitive salary ranges based on external market data help organizations remain competitive in the labor market, reducing turnover and attracting top talent.

Tools like Competitive Compensation provide real-time market benchmarking to ensure salaries align with industry standards, supporting talent acquisition and retention.

Benefits for employees

For employees, a clear salary structure provides transparency and motivation:

• Understands pay progression: Employees can see how pay increases or promotions lead to higher pay levels within their pay grade.

• Knows maximum earning potential: Each pay grade has a maximum salary, serving as a reference point for career planning.

• Motivates performance: A structured system encourages employees to excel, knowing their efforts can lead to a pay raise or advancement.

Total Compensation Statement enhances this by providing employees with clear, comprehensive statements detailing their full compensation package, including base salary, bonuses, and benefits, fostering transparency and motivation.

The importance of pay transparency and pay equity in 2025

In 2025, pay transparency and equity are vital for competitive and compliant salary structures. Pay transparency, mandated in 21 U.S. states for job posting pay ranges, promotes fairness and trust by clarifying pay levels, grades, and increases. Pay equity ensures fair compensation across gender, race, and other characteristics, using job evaluations and market data.

Regular audits, supported by Reporting and Analytics, help maintain compliance and prevent discrimination by identifying pay discrepancies and providing actionable insights.

Types of salary structures

Organizations can choose from various types of salary structures based on their size, industry, and goals. Each type has unique features to suit different needs.

1. Traditional salary structures: These are graded systems with narrow salary ranges for each pay grade. Jobs are grouped based on their relative value to the organization, and employees progress through pay bands as they gain experience or are promoted. Traditional structures are common in stable industries like manufacturing or government.

2. Broadband salary structures: Featuring fewer pay grades with wider salary ranges, broadband salary structures offer flexibility in compensation packages. They allow for greater variation in pay based on individual performance, making them ideal for dynamic industries like technology.

3. Market-based salary structures: These rely on market data from salary surveys to set competitive salaries. Market pricing ensures pay aligns with what similar roles earn in the job market, helping organizations stay attractive to top talent.

4. Step pay structures: Common in unionized or public sector roles, these have predefined steps within each pay grade, often tied to tenure. Employees receive a pay raise after a set period, ensuring predictable pay progression.

5. Performance-based structures: Compensation is linked to individual or team performance, with variable components like bonuses or incentives. This structure aims to reward employees for achieving specific goals, fostering a culture of accountability.

How to create a salary structure design in 2025

Creating a salary structure design in 2025 requires a blend of traditional methods and modern technology to address market demand and employee expectations. Here’s a step-by-step guide:

1. Step 1: Conduct thorough job analysis

   Perform a job analysis to evaluate job responsibilities, required skills, and the relative value of each role. Job evaluation methods, such as point factor analysis or market pricing, help determine where roles fit within the structure. Group similar roles into job families for consistency.

   Analytics provides advanced analytics to uncover compensation trends and gaps, ensuring precise job evaluations.

2. Step 2: Gather market data

   Use salary surveys and market research to collect external market data on pay for similar roles. In 2025, AI tools can analyze large datasets to provide accurate insights, ensuring competitive salary ranges.

3. Step 3: Define pay grades and ranges

   Group jobs with similar market-based values into pay grades. Each grade should have a salary range with a minimum and maximum salary, typically centered around the market midpoint. For example, a pay band for a mid-level role might range from $50,000 to $70,000.

4. Step 4: Ensure internal and external equity

   Maintain internal equity by ensuring pay differences reflect variations in job responsibilities or performance. External equity is achieved by aligning pay with market data to remain competitive and avoid pay inequity.

5. Step 5: Incorporate flexibility

   Design the structure to allow for pay increases based on performance, tenure, or other factors. This could include merit-based salary increases or bonuses to motivate employees and support employee retention.

6. Step 6: Leverage technology

   Use AI and HR software to streamline compensation management. AI can identify pay discrimination risks, suggest adjustments, and integrate with existing HR systems for efficient payroll processing.

   

   HR Technology Integration ensures seamless data synchronization with platforms like ADP and Workday, enhancing workflow efficiency.

7. Step 7: Communicate transparently

   Ensure employees understand the compensation structure through clear communication. Explain how pay is determined, the pay ranges for each grade, and opportunities for pay progression. Pay transparency builds trust and enhances employee satisfaction, especially with new laws requiring pay ranges in job postings.

   Customizable Dashboard provides a user-friendly interface to visualize pay data, aiding transparent communication with stakeholders.

Best practices in creating a salary structure design

To ensure your salary structure is effective and sustainable, follow these best practices:

• Conduct thorough job analysis: Accurately assess each role’s job responsibilities and value to place them correctly within pay grades. This prevents pay inequity and supports fair compensation.

• Use reliable market data: Regularly update market data through salary surveys to reflect current job market trends. This ensures competitive salaries that attract and retain talent.

• Establish clear pay grades and ranges: Define pay grades with minimum and maximum salaries to provide structure and flexibility. Ensure jobs in the same pay grade are comparable in value.

• Ensure pay equity and compliance: Conduct regular audits to prevent pay discrimination and ensure compliance with minimum wage laws and other relevant labor laws.

• Regularly review and update: The labor market evolves, so periodically adjust salaries to align with market demand and organizational goals. This keeps the structure relevant and competitive.

• Communicate transparently: Provide clear information about the compensation structure, including how pay levels are set and opportunities for salary increases. Pay transparency fosters trust and helps employees understand their pay.

• Leverage technology: Use AI tools to analyze market data, monitor pay equity, and streamline compensation management. These tools enhance accuracy and efficiency in managing compensation.

• Solicit employee feedback: Encourage employee feedback on the salary structure to identify concerns and make adjustments. This improves employee satisfaction and supports employee retention.

A salary structure is a cornerstone of effective compensation management in 2025. Leveraging market data, embracing pay transparency, and using technology to enhance pay equity, organizations can create compensation packages that attract, retain, and motivate employees. Regular reviews, clear communication, and compliance with relevant labor laws ensure the structure remains competitive and fair.