How often should I update my salary bands?

At minimum, once a year. The BLS publishes new OEWS data every spring. Use that as your trigger to refresh bands and check whether your current employees are still positioned appropriately within their ranges.

Do I need different bands for different locations?

If all your employees are in one metro area, no. If you have remote employees across multiple states, you'll need to decide whether to use one national band or location-adjusted bands. For companies under 100 employees, a single set of bands based on your headquarters location is usually sufficient.

What if my CEO wants to pay someone above the band maximum?

Document it. Make sure the CEO understands this creates a precedent and a potential pay equity issue. If the role has genuinely expanded in scope, the right move is to re-level it into a higher band — not to stretch the existing band.

How to Build a Compensation Philosophy Without a Consultant

2026-04-11 · HR Cadence Hub Team

You don't need a $15,000 consulting engagement to figure out how to pay people fairly.

If you're the only HR person at a company with 20, 50, or even 150 employees, you've probably been asked at least one of these questions: "Are we paying competitively?" "Why did our best engineer leave for a 20% raise?" "Can we afford to give everyone 4% this year?"

And you've probably answered with some version of: "I'll look into it" — followed by a frantic Google search, a downloaded salary guide, and a gut feeling.

That's not a compensation philosophy. That's survival mode.

A compensation philosophy doesn't need to be a 40-page document. It needs to answer four questions clearly enough that you can defend every pay decision you make — to your CEO, to your employees, and to yourself.

What a Compensation Philosophy Actually Is

Strip away the HR consulting jargon and a compensation philosophy is a one-page document that answers four questions:

1. Where do we want to pay relative to the market? Do you aim to match market rates (50th percentile), lead the market (75th+), or pay below market and make up for it with other benefits?

2. What do we reward? Tenure? Performance? Skills? Scope of responsibility? Some combination?

3. What's included in "total compensation"? Just base salary? Salary plus bonus? Do you factor in benefits, PTO, flexibility, equity?

4. How do we handle geographic differences? One rate for everyone? Location-adjusted? Cost-of-labor based?

That's it. Answer those four questions and you have a compensation philosophy. Everything else — salary bands, merit increase budgets, offer guidelines — flows from those answers.

Step 1: Decide Where You Want to Land on the Market

This is the most important decision because it sets your budget reality. There are three common positions:

Match the market (50th percentile): You pay what most companies pay for similar roles. This is the safest default for companies under 100 employees. It keeps you competitive without overextending your budget.

Lead the market (60th–75th percentile): You intentionally pay above average. This makes sense if you're in a competitive talent market, can't offer equity, or need to reduce turnover in critical roles. But it commits you to higher fixed costs.

Lag the market (25th–45th percentile): You pay below market but compensate with something else — equity at a startup, exceptional flexibility, mission-driven work, faster career growth. This only works if those other factors are real and valued by your employees, not just things you tell yourself.

Most companies with 10–250 employees should start at the 50th percentile and selectively move to 60th–75th for hard-to-fill or high-impact roles. You don't need to pay everyone above market — you need a defensible reason for where each role lands.

Step 2: Gather Market Data (For Free)

You don't need a $5,000 salary survey subscription. Here are four free sources that give you defensible data:

Bureau of Labor Statistics (BLS) — Occupational Employment and Wage Statistics (OEWS): This is the gold standard free source. The BLS surveys roughly 1.1 million employers across a three-year cycle and publishes wage data for over 800 occupations broken down by national, state, and metropolitan area. The most recent dataset covers May 2024 wages, released April 2025. Go to bls.gov/oes and search by occupation and location. You'll get 10th, 25th, 50th, 75th, and 90th percentile wages.

O*NET OnLine (onetonline.org): Run by the Department of Labor, ONET provides detailed occupation profiles including median wages, projected growth, and required skills. It's particularly useful for understanding what job duties belong in which classification — which matters when you're benchmarking.

Robert Half Salary Guide: Published annually as a free downloadable PDF. It covers accounting, finance, technology, administrative, legal, and creative roles. The data skews toward professional roles but includes useful trend commentary and regional adjustments.

Glassdoor / Indeed / LinkedIn Salary Insights: These use employee-reported data, so they're less scientifically rigorous than BLS. But they're useful as a cross-reference, especially for roles where BLS categories are too broad. Use them as a sanity check, not your primary source.

How to actually do it: Pick your 10 most common roles. Look up each one in BLS first, note the 50th percentile for your metro area, then cross-reference with one other source. Build a simple spreadsheet with columns for role, BLS median, second-source median, your current pay, and the gap.

Step 3: Build Your Salary Bands

Once you have market data, you need structure. Salary bands give you a range for each role instead of a single number, which gives you room for experience, performance, and negotiation without making ad hoc decisions.

A simple three-tier approach works for most small companies:

Minimum (80% of midpoint): Entry-level or new-to-role employees. They're learning, and you're investing in their development.

Midpoint (100% — your target percentile): Fully competent performers who meet all expectations. This is where most employees should cluster.

Maximum (120% of midpoint): Top performers, long-tenured employees, or people with specialized skills. When someone hits the max, their next move is a promotion to a higher band — not a bigger raise in the same role.

For example, if your market data says a Marketing Manager in your area has a median salary of $85,000, your band would be $68,000 (min) to $102,000 (max) with an $85,000 midpoint.

Start with bands for your most populated roles. You don't need to band every single position on day one.

Step 4: Write It Down (One Page)

Your compensation philosophy document should fit on a single page. Here's a template you can adapt:

[Company Name] Compensation Philosophy

Our approach: We target the 50th percentile of market rates for our industry and geography, with flexibility to pay at the 60th–75th percentile for roles critical to our business.

What we reward: We base compensation primarily on the scope and impact of the role, with adjustments for individual performance, relevant experience, and specialized skills.

Total compensation includes: Base salary, annual performance bonus eligibility (if applicable), health/dental/vision benefits, PTO, and [any other benefits you offer].

Geographic approach: We use [location-based / national / hybrid] pay rates based on [cost of labor data / company headquarters location / role-specific market data].

Pay equity commitment: We review compensation data annually to identify and address pay disparities based on gender, race, or other protected characteristics.

Review cycle: Compensation is reviewed annually during [month]. Market data is refreshed at least once per year.

That's your compensation philosophy. Print it. Share it with your leadership team. Reference it every time someone asks for an off-cycle raise or a new hire negotiates above range.

Step 5: Get Leadership Buy-In (Before You Need It)

A compensation philosophy only works if leadership follows it. The worst time to explain your philosophy is when a hiring manager wants to offer $30,000 above range because "this candidate is really special."

Present your philosophy and market data to your leadership team before the next hiring cycle or annual review. Show them the data, explain the bands, and get explicit agreement on exceptions — who can approve above-range offers, under what circumstances, and with what documentation.

Step 6: Maintain It

A compensation philosophy isn't a set-it-and-forget-it document. Build these into your annual [HR cadence](/blog/how-to-build-hr-cadence-system):

- Q1: Refresh market data from BLS (new OEWS data typically publishes in spring). Adjust bands if the market has moved significantly. - Annual review cycle: Use your bands to guide merit increases. Employees below midpoint who are performing well should move toward midpoint faster. - Every new hire: Check the offer against your bands before extending it. Document any exceptions and why they were approved. - Annually: Run a pay equity analysis. Compare compensation across gender, race, and tenure for employees in the same band. If you find disparities, address them.

What This Looks Like in Practice

You don't need to have all the answers before you start. A solo HR professional with a spreadsheet, free BLS data, and a one-page philosophy document is in a stronger position than 80% of companies under 250 employees who have no documented approach at all.

The goal isn't perfection. The goal is moving from "we just kind of figure it out" to "here's our framework, here's our data, and here's how we make decisions." That shift protects the company legally, gives employees confidence that pay decisions are fair, and gives you something to point to when leadership asks why you can't match a competing offer.