Salary Step Structure: How to Build Pay Steps (and When to Use Open Ranges Instead)

Salary Step Structure: How to Build Pay Steps (and When to Use Open Ranges Instead)

Every pay grade needs a rule for where people sit inside it. An open range leaves that call to managers. A step structure takes the call away and replaces it with a published schedule: start at Step 1, move up on a set timeline, and top out at the last step.

Step structures are common in government, education, and union shops, and they work well when you need predictability and a clean answer to "why does she earn more than me?" They also lock in cost and reduce flexibility. This guide shows you how to build one from your grades, how to pick the step count and step size, and how to decide whether steps or open ranges fit your organization.

TL;DR

• A step structure divides each pay grade into fixed pay points. Employees move up on a schedule tied to time, performance, or skills.
• Build it in four moves: set the midpoint, choose the range spread, pick the step count, then derive a constant step percentage (typically 2% to 5%).
• Steps give you transparency, easy budgeting, and fewer pay equity questions. They cost you flexibility and can reward tenure over results.
• Use steps for large, hourly, unionized, or public-sector populations. Use open ranges for professional and market-driven roles.
• Your grades come first. If job evaluation points do not place jobs in the right grades, steps just make the wrong pay very orderly.

What a salary step structure is

A salary step structure is a pay schedule where each grade has a fixed number of pay rates, called steps. Step 1 is the entry rate. The last step is the maximum. An employee advances one step at a time, usually once per year, as long as they meet the progression rule.

Compare that with an open range, which publishes only a minimum and a maximum. The City of Nashville describes both models on its salary system page: employees on step schedules are typically hired at the first step and progress through the range annually with acceptable performance, while open-range grades list only a minimum and maximum and let pay land anywhere in between based on factors like performance, skills, and experience.

Think of it this way. Open ranges ask the manager to decide. Steps ask the schedule to decide.

Step structure vs open range

ERI Economic Research Institute notes that step-rate programs are common in the public sector, government, higher education, and unionized organizations, and that they are used by fewer than 10% of organizations overall. Market pricing with open ranges is far more common.

How to build a step structure

Start with a grade that already has a market-based midpoint. If you do not have grades yet, read how to build a salary structure from scratch and how to set salary range midpoints first.

Step 1: Set the midpoint

Anchor each grade to the market rate for its benchmark jobs. For our example, Grade 10 has a market midpoint of $62,000.

Step 2: Choose the range spread

Range spread is (max ÷ min) − 1. Step plans for hourly and clerical work usually run a 20% to 40% spread. Professional grades run wider. A narrow spread fits roles where experience adds limited value. A wide spread fits roles where a veteran does materially better work than a new hire.

Step 3: Pick the number of steps

Most plans use 5 to 10 steps. More steps mean smaller raises and a longer path to the top. Fewer steps mean bigger jumps and a faster path to the maximum.

Match the step count to how long it genuinely takes to become fully proficient. If a job takes three years to master, a ten-step grade is a ten-year ramp for no business reason.

Step 4: Derive the step percentage

Use a constant percentage so every step feels equal. Place the market midpoint at the middle step, then work up and down. For nine steps at 3.5% per step, Grade 10 looks like this:

Each step is the previous step times 1.035. The spread works out to about 32% (($71,146 ÷ $54,029) − 1). ERI cites a typical step increment of 2% to 5%, so 3.5% sits comfortably in the middle.

Step 5: Set the distance between grades

Grade midpoints should rise by a steady percentage, typically 5% to 10% per grade. At 8%, the Grade 11 midpoint is $66,960. Pick this number deliberately, because it controls pay grade overlap and the size of a promotion raise. If your step percentage is 3.5% and your grade gap is 8%, a promotion lands a person roughly two steps up from their current rate. That feels like a real promotion.

Step 6: Round and publish

Round every step to a clean number, then publish the full schedule. Transparency is the main selling point of steps, so hiding the table defeats the purpose.

Choose your progression rule

The schedule is only half the design. The progression rule decides what you are paying for.

• Automatic (seniority). Employees advance on a fixed timeline. This is simple and cheap to run. It rewards retention and nothing else.
• Performance-gated. Advancement depends on a rating. A common pattern: "exceeds" earns two steps, "meets" earns one, and "does not meet" earns none.
• Skill-based. Employees move up as they certify new skills. This pairs well with skills-based pay in trades and operations.

Pick one rule and write it down. Mixed or unwritten rules recreate the manager discretion you were trying to remove.

When steps work and when they do not

Steps fit when you have many people in similar jobs, when labor agreements require a published schedule, when budgets are set by a governing body, or when pay equity scrutiny is high. A fixed schedule makes it hard for two people in the same job to drift apart for reasons nobody can explain.

Steps struggle when markets move fast. If software engineers jump 12% in a year and your top step moves 3%, you cannot hire at Step 1. You also face a long-run cost problem: if everyone ratchets up one step per year and turnover is low, your average cost per employee rises faster than your budget. ERI also flags that purely seniority-based plans can draw age discrimination claims, so involve legal counsel before you adopt one.

Common mistakes to avoid

1. Building steps on top of unevaluated grades. Fix grading with a defensible evaluation method first.
1. Too many steps. A twelve-step grade for a job learned in eighteen months is a retention tax on your best people.
1. Hiring everyone at Step 1. Allow credit for experience, but write the rule down so it applies equally.
1. Ignoring compression. Late-career employees at the top step can end up near their supervisors. Watch for pay compression.
1. Never updating the schedule. Move the whole table with the market on a regular cycle, as described in our guide to salary structure adjustments.

Not sure a step plan fits your jobs? See how broadbanding compares with traditional structures before you commit.

Track the structure after launch

Once the schedule is live, measure how people sit in it. Track the share of employees at each step, average time to reach the top, and compa-ratio by grade. A pile-up at the top step means you need a longevity or career-ladder option. A pile-up at Step 1 means your hiring or progression rules are too tight.

Frequently asked questions

What is the difference between a pay grade and a pay step?

A pay grade is the range assigned to a group of similar jobs. A pay step is a specific pay point inside that grade. Grades come from job evaluation. Steps come from your range design.

How many steps should a pay grade have?

Most organizations use 5 to 10. Pick the number based on how long a person needs to reach full proficiency, not on a default. Shorter ramps suit simpler jobs.

How big should each step be?

Between 2% and 5% is the typical band. Use a constant percentage so the table looks even. Smaller steps feel meaningful only if you keep the range spread wide enough to give people room to grow.

Can I mix steps and open ranges?

Yes. Many public employers use steps for non-exempt and clerical roles and open ranges for professional roles. Nashville's salary system does exactly this. Keep the boundary clear and documented.

Do steps guarantee a raise every year?

Only if the plan says so. Automatic plans advance on schedule. Performance-gated plans advance only when the person meets the standard. Either way, the market adjustment to the whole table is a separate decision.

How do steps affect pay equity?

They help. With a published schedule and a written entry rule, there are fewer places for unexplained differences to enter. They do not fix biased grading, so audit your grades too.

What happens when someone reaches the top step?

They stop advancing within the grade. Options include longevity pay, a lump-sum award, a promotion path, or an added career-ladder level. Decide this before launch.

Should I use steps for a startup?

Usually not. Startups hire against fast-moving markets and need flexibility. Open ranges or broadbands fit better until headcount and structure stabilize.

Build the grades first

A step table is only as good as the grade it sits in. PointFactors scores each job against weighted compensable factors, so your grades and midpoints rest on a consistent method before you add a single step. See how it works in a short demo.

Ready to put a structure on a defensible foundation?

Score your jobs, set your grades, and publish a schedule your managers can explain in one sentence. Start free with PointFactors and we will walk through your own job data.

By Justin Hampton, founder and CEO of PointFactors.