Pay grades vs salary bands: what is the difference?
A pay grade is a level in your job architecture. A salary band is the pay range attached to that level. The grade groups roles of similar value to the business, usually with a name like Grade 5 or Senior Engineer II. The band gives that grade a minimum, a midpoint and a maximum in dollars. Grade answers "which bucket is this job in." Band answers "what does the bucket pay." You need both, and most confusion comes from companies that built one and assumed it was the other.
The terms have also drifted. Twenty years ago a pay grade implied a narrow range and a salary band implied a wide one, which is where the word broadbanding came from. Today most people use grade and band nearly interchangeably, and vendors use whichever word their product happens to display. That is fine in conversation and expensive in a policy document, so this guide separates the two cleanly and then covers the design decisions that actually matter: how many grades, how wide, how much overlap, and what to do when someone tops out.
Grade, band, family, level: the four terms, separated
| Term | What it is | Example | Question it answers |
|---|---|---|---|
| Job family | A grouping of roles that share a discipline. | Engineering, Sales, Finance, Customer Support | What kind of work is this? |
| Level | Seniority inside a family, described by scope and autonomy. | Engineer I, Engineer II, Senior Engineer, Staff Engineer | How senior is this person in their craft? |
| Pay grade | A company-wide tier that groups levels of comparable value across families. | Grade 6, which holds Senior Engineer and Senior Accountant | How valuable is this level to the business? |
| Salary band | The dollar range attached to a grade: minimum, midpoint, maximum. | $118,000 / $140,000 / $162,000 | What do we pay for this? |
The structural point that gets missed: pay grades cut across job families horizontally. A Grade 6 engineer and a Grade 6 accountant are asserted to be of comparable value to the company, even though their market rates differ. That assertion is what makes internal equity analysis possible, and it is also the assertion that gets tested when engineering market rates run ahead of finance market rates and the grid stops matching reality. Handling that is a design decision, not a failure: either you let bands vary by family within a grade, or you accept paying above market in one function and below in another.
How many pay grades should a company under 200 people have?
Six to ten across all functions is the range that works for almost every company at this size. The logic is straightforward. Fewer than six and each grade covers so much ground that a promotion means a 30 percent pay jump, which finance will not fund, so promotions stop happening and your best people leave for a title elsewhere. More than ten and you are maintaining distinctions between Grade 7 and Grade 8 that no manager can articulate and no employee believes, which converts your structure into theatre.
A practical starting grid for a 60-person company looks like this: two grades for entry and associate work, three for the individual contributor career track through senior, two for staff-level and first-line management, and one or two for directors and above. That is eight. You can hold that structure to about 200 people before it needs a real redesign, which is exactly the point at which most companies hire their first compensation specialist anyway.
Deciding what separates one grade from the next is a separate exercise from pricing them, and it should happen first. Our guide to building a job leveling framework covers the five criteria that hold up under challenge and the matrix that makes them concrete for managers.
Band width and overlap: the two numbers that decide everything
Once the grades exist, two decisions determine how the structure behaves in practice: how wide each band is, and how much adjacent bands overlap.
Band width, expressed as range spread, is the maximum divided by the minimum minus one. A band of $100,000 to $130,000 has a 30 percent spread. Conventional practice runs roughly 25 to 30 percent at entry levels, 30 to 40 percent for professional and senior individual contributors, and 40 to 50 percent for management and executive roles, on the reasoning that senior roles have more room for performance to vary the value delivered. The full treatment is in how wide should a salary range be.
Overlap is the part people forget, and it causes more real damage. Adjacent grades should overlap by roughly 20 to 40 percent of their width. That means a genuinely excellent senior engineer near the top of Grade 6 can earn more than a newly promoted staff engineer at the bottom of Grade 7, and that is correct: the senior engineer is contributing more today. A structure with zero overlap forces you to promote someone every time they deserve a raise, which is how companies end up with title inflation and a Director of Everything at 45 people.
| Grade | Minimum | Midpoint | Maximum | Spread |
|---|---|---|---|---|
| Grade 4 | $72,000 | $83,000 | $94,000 | 31% |
| Grade 5 | $86,000 | $101,000 | $116,000 | 35% |
| Grade 6 | $105,000 | $124,000 | $143,000 | 36% |
| Grade 7 | $128,000 | $154,000 | $180,000 | 41% |
Read that grid vertically and you can see the design working. Each midpoint sits about 20 to 24 percent above the one below it, which is a meaningful promotion increase. Each band overlaps the next by roughly a third of its width, so Grade 5's maximum of $116,000 sits comfortably inside Grade 6's range. Spread widens gently as you go up. None of these numbers are magic, but the relationships between them are what make a structure survive contact with a real merit cycle.
What is broadbanding, and should you use it?
Broadbanding collapses many narrow grades into a few very wide ones, sometimes with spreads of 100 percent or more. It was popular in the 1990s at companies flattening their hierarchies, and it survives today mostly at organizations that want maximum manager discretion.
The case for it is real: fewer grades means fewer boundary disputes, less pressure to invent promotions, and room to pay a specialist well without re-leveling them. The case against it is also real and has grown stronger. Wide bands make pay decisions hard to explain, which is exactly the wrong property in an environment where employees compare notes and states require posted ranges. A 100 percent spread also produces a posted range so wide that a good faith standard starts to look strained, and Minnesota's ban on open-ended ranges signals where regulator sentiment is heading generally.
For a US company under 200 people in 2026, we would not recommend broadbanding. Moderate spreads with healthy overlap give you most of the flexibility with none of the explainability cost.
Placing real people into the structure
Building the grid is the easy half. Slotting your existing employees into it is where the structure earns its keep or falls over, because you will immediately find people whose current pay does not fit the band their role belongs in. Three cases, and what to do with each.
Below the minimum
Usually a tenured employee whose band moved while their raises did not, which is ordinary pay compression. Bring them to at least the minimum, and do it on a documented schedule rather than whenever someone complains. An employee below the floor of their own published band is the hardest possible fact to explain in a transparency environment.
Above the maximum, sometimes called a red circle
Either the person has outgrown the level and should be re-graded, or they were genuinely overpaid at hire. Cutting pay is almost never the answer. The standard move is to hold base flat and route future increases into a bonus that does not compound, while checking honestly whether the next grade is the real answer.
Clustered at the same point regardless of tenure
Five people in one band all sitting within a few thousand dollars of each other, despite very different experience, means the band is doing no work. Spread them by performance and scope using compa ratio as the yardstick, which is also the fastest way to see the pattern in the first place.
Do this work in a spreadsheet the first time and you will spend two days on lookups. Once you are past about 50 employees it is worth pulling the roster, the levels and the current salaries into something you can query in plain English, because the questions you actually want answered are things like "which tenured employees are paid below newer hires in the same grade," and that is a join, not a filter.
Frequently asked questions
What is the difference between a pay grade and a salary band?
A pay grade is a level in your job architecture that groups roles of similar value, such as Grade 5. A salary band is the pay range attached to that grade, with a minimum, midpoint and maximum. The grade says which bucket a job sits in; the band says what that bucket pays.
What is broadbanding in compensation?
Broadbanding collapses many narrow grades into a few wide bands, often with spreads of 100 percent or more. It gives managers flexibility and reduces title inflation pressure, but it makes pay decisions hard to explain and fits poorly with states that expect a good faith posted range.
How many pay grades should a small company have?
Six to ten across all functions works for most companies under 200 employees. Below six, promotions require pay jumps finance will not fund. Above ten, you are maintaining distinctions managers cannot explain and employees do not believe.
Do you need pay grades to comply with pay transparency laws?
No law requires a grade structure, but the posting laws require its output. States using a good faith standard ask whether your posted range reflects what you would genuinely pay, and a documented band tied to a defined level is the easiest way to show that. Our pay transparency guide covers the state-by-state detail.
What is a job family and how does it relate to pay grades?
A job family groups roles sharing a discipline, like engineering or finance. Pay grades cut across families to describe level, so a Grade 6 engineer and a Grade 6 accountant are asserted to be of comparable value. Families answer what kind of work; grades answer how senior; bands answer what it pays.
Should salary bands overlap between grades?
Yes, by roughly 20 to 40 percent between adjacent grades. Overlap lets a strong performer at the top of one grade out-earn a new hire in the grade above, which is correct. Zero overlap forces a promotion every time someone deserves a raise, and that is how title inflation starts. The full set of guardrails for spread, midpoint progression and overlap sits in our guide to salary structure design.
Do it now
A grade structure is only as good as the market data underneath each band. Wagelist turns a role, a market, a level and a company stage into a P25/P50/P75 band from public U.S. BLS wage data, so your grid rests on real percentiles rather than last year's offers.