Bright + Early is a modern HR consultancy. One thing we build is custom compensation strategies, and you can hire us to build yours. We build a lot of compensation for startups and compensation for nonprofits. We believe in open-sourcing our work so that workplaces everywhere can be better designed and more inclusive, no matter their budget. Want to follow along? Sign up for the Bright + Early newsletter to get new guides straight to your inbox.

What’s thought about the most, talked about the least, and understood even less? Probably, your team’s pay structure. 

We’ve run and reviewed hundreds of employee experience surveys over the years, and satisfaction with comp almost always scores the lowest. The reason isn’t always because pay is actually too low; these scores often come from a lack of understanding of how pay works, how decisions are made, and where the data comes from. The secret? In many organizations, especially those in growth mode, there is no system. At least, not yet.

If better engagement, smoother hiring, and simpler budgeting aren’t reason enough, pay transparency laws are rolling out across the globe. This makes having a solid compensation strategy a non-negotiable. In a world where people often think you have to choose between being an inclusive team or a high-performing one (wrong!), compensation is one of the clearest ways to support both*.

If you're new to doing this, it’s likely you’ve been sourcing data from “friendlies” at similar companies, investors, or job postings from your competitors. This approach can get you through your first few hires, but it will only take you so far. Compensation isn’t just about matching what others are paying– it should be designed around what you value, where you’re going, and what you'll reward. But how do you translate those values into actual, usable salary bands?

A lot of compensation experts don’t; they simply give you some bands and spreadsheets and call it a day. At Bright + Early, we’ve developed a unique process that marries your values with the data-backed research your board, budget, and finance team crave. And we're sharing it openly here!

Here’s a look at how we do it, newly updated for 2025.

This guide will help you:

• Design your own custom compensation philosophy
  
• Build researched salary bands that match your budget and values
  
• Decide on benefits, perks, and bonuses that align with your goals
  
• Roll it all out with clarity and buy-in

*In fact, we often recommend that organizations make their pay system clear and objective before investing in more extensive DEI strategies or training.

Please note that compensation can have many individual compliance factors based on your location, industry, and size. This is a high-level guide to get you started, and does not constitute legal or financial advice!

Step 1: Get Philosophical

Before you get into spreadsheets, start by considering what you believe (and want to achieve) when it comes to pay. Compensation is a tool; It tells your team what you’ll reward, and encourages (or discourages) them towards certain behaviours. So what do you want it to say?

For example:

• Teams that value equitable approaches might set salary minimums above the living wage and reduce the pay gap between the highest and lowest paid employees.
  
• A highly collaborative team might offer group bonuses based on shared success.
  
• A team that values ownership might offer equity or bonuses tied to individual results.

Even if you’re only trying to meet the basics, it’s still worth being clear with your team about how pay works.

The outcome of this reflection is your compensation philosophy that outlines how you’ll approach pay. As a team-facing document, your compensation philosophy helps guide managers through hiring and career conversations and helps recruiters sell the organization. Most importantly, it lets employees know, loud and clear, what they can expect.

To shape yours, start by reflecting on questions like:

• What do you want to reward? Do you have defined organizational values? How do you know that people are living by them? Are there metrics or goals on an individual, team or company-wide basis? What behaviours would you want to encourage people towards, or away from?
  
• What benefits, flexibility, time off, stock options, or other non-salary perks matter to your team?
  
• How do you want your pay to compare with others in your industry? This depends on your budget, stage of growth, how challenging it is to hire or retain in your industry, and the mix of non-salary comp you want to offer. Some examples:
  
  • Team A is a nonprofit. The team is growing, and their operating model largely depends on government grants and donor relationships. To maintain financial sustainability, they pay at market compared with other nonprofits, but offer remote work, generous vacation, and office closures throughout the year to make their total compensation package stand out in their industry.
    
  • Team B is a tech scale-up in a niche industry with lots of budget and an ambitious hiring plan. However, they can't offer as much equity upside, as their team is already over 500 employees. They may want to choose a higher salary percentile to compete for talent.
    
• How will pay increases work? By performance, inflation, tenure, market rates, or a combination? How often will they happen, and who’s involved? 

In our own practice, we usually explore these questions with a facilitated workshop, inviting senior leadership, HR, finance, and other select decision-makers. It’s also okay if you don’t have all the answers yet; the point is to get thinking about how you can make your compensation strategy uniquely yours. You’ll refine your compensation philosophy as you move through the steps in this guide. If you need inspiration, we’ve included a sample philosophy at the end.

Step 2: Match the Market

Once your values feel clear, it’s time to connect them to real-world roles. This is a crucial step before diving into any market salary research. Start by collecting your team’s job titles and descriptions. Then compare them to similar roles in other organizations. This is called job matching, and it helps ensure your roles are aligned with market data.

Compensation pros will use extensive (and expensive) salary databases for this work. If you don’t have access to a database, you can do this manually in Excel by sourcing similar job descriptions from the web. However, this approach can be unreliable, as companies have different ways of levelling and describing their jobs. We recommend investing in a database developed for your industry or working with experts who have access to a wide variety of research, like the Bright + Early team.

As you match your jobs, use this moment to look over your organization’s job levels and expectations. Pulling good research is a lot easier when roles are clearly outlined and when titles align across different departments. For example, your general expectations of what a Director (or a Coordinator) can do should be broadly the same across different teams. If you have nothing in place here, you may want to consider exploring building some role frameworks first. 

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Step 3: Research and Verify

You'll want to start by gathering industry data for each role you’ve matched and finding the market averages. You’re looking for benchmarks like:

• Lagging (below the 45th percentile)
• Aligned with the market (around the 50th percentile)
• Leading (75th percentile +)
  

Once you’ve pulled your data for roles and levels, it’s time to turn all that research into the thing everyone is so eager to see– salary bands! 

Step 4: Build Your Salary Framework

At a basic level, salary bands are pay ranges for each level of a role, depending on skill and seniority.

Referring back to step 1, identify the market range you want to be within. For example, say you want to match the market and pay at the 50th percentile. To build your bands, choose a range that surrounds that percentile. A range of 0.80 to 1.20 is a common formula.

If the P50 for a Level 2 Product Manager is $100,000, your band might be $80,000 to $120,000.

Note that you’ll likely want some overlap between bands to account for growth within a role. For example, a Level 3 Product Manager’s band might start at $115,000, instead of right at $120,000. Too much overlap can cause inequity, but too little can make it hard to reward people who are developing but not quite ready for a promotion. If you want more overlap between your bands, you can use a wider range in your formula.

*Salary bands aren’t the only method you can use here. Organizations that are unionized, or that tie salary increases to tenure, often use a step wage grid, which has less room for flexibility based on performance. If your organization wants to build a wage grid, you can still start with your same chosen market rate and set it up to increase by a fixed percentage on each step. For example, a team that uses a step wage grid and provides increases entirely based on tenure might offer a 3% increase per year per role.

Step 5: Audit the Impact

Now, you'll look at your new bands vs. your current team's pay. This is a good time to audit whether your chosen bands are actually realistic. If you go through this exercise and find you need to make increases that are far beyond your budget, you may want to revisit where in the market you can realistically pay. You can look at other ways of incentivizing until you can afford the range you want.

If you have existing salary bands that you’re updating: Start by calculating a compa-ratio for each person. First, calculate current employee band placements by dividing current employees’ salaries by the midpoint of their current salary band. This number is called a compa-ratio, and it will tell you how far along someone is within their current band. Then, take that compa-ratio and multiply it by the midpoint of the new band to populate the employee’s placement in the new band. If someone falls below the new minimum, we’ll want to raise them to meet it. If someone is above the maximum, you can’t bring it down, but you should flag it for future planning.

Example: 

Before:

• Current salary band: $80,000 to $120,000
• Current midpoint: $100,000
• Current employee salary: $90,000
• Current comp-a-ratio: currently salary / current band midpoint = compa ratio
  
  • $90,000 / $100,000 = 0.9

After:

• New salary band: $90,000 to $130,000
• New midpoint: $110,000
• New employee salary: compa ratio * new midpoint = new salary
  
  • 0.9 * $110,000 = $99,000

If you’re building salary bands for the very first time: Skip the above exercise, and compare your current salaries to your new bands, noting how many are within, below, and above them.

Note: Though it’s tempting, keep discussions about performance out of the picture for now. You’re building a compensation structure, not running reviews.

Step 6: Make It Whole

Benefits & Perks

Salary isn’t the only piece in the compensation pie. Your benefits and perks help communicate who you are and what you believe in. 

For example:

• If you value inclusion, your perks could include a parental and pregnancy leave policy & top-up plan, additional days off for cultural celebrations, and flexible working hours to accommodate caregiving responsibilities.
• If you value continuous learning, a professional development budget could be allocated to help employees advance their skills.
• If your organization values mental well-being, your perks can include additional coverage for mental health and resources to help managers track potential burnout.
• If your organization thinks taking time off is important, you can have a flexible leave policy and a culture that allows people to take time off.

 If you’re starting with a basic budget for benefits, we recommend prioritizing:

• Necessities (for example, health benefits before professional development budgets)
• Employee choice (a broad healthcare spending account versus a specific type of therapy coverage)
• Making baby steps towards the benefits you eventually aspire to. For example, if you can’t yet afford a huge parental leave top-up, at least ensure your benefits have dependent coverage.

If you need some help building your benefits, check out our guides on designing them both in Canada and across the globe.
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Variable Compensation: Bonuses and Commissions

Bonuses aren’t for everyone; in fact, we often recommend against them, especially for earlier-stage organizations or roles that don’t have clear, measurable output. Like anything in your pay structure, any variable compensation plan you decide to implement can have an impact on behaviours and values. Here are some considerations to help you determine if variable pay is right for you:  

• What do you want your variable pay to reward? For example, if base salaries compensate employees for their jobs, do bonuses compensate for stretch work? Do base salaries reward individual performance while variable pay reinforces group success?
  
• Are you in a phase where you have super stable goals and metrics? A variable pay program may become unachievable as goals change and pivot.
  
• If bonuses are based on financial performance, consider your readiness for financial transparency on your team. 
• Could you accidentally encourage the wrong behaviours? For example, individual commission plans may motivate employees to work towards volume versus quality and short-term results, versus the best interests of their clients and team. 
• Can you run this in a way that aligns with your values? For instance, if you support inclusion for parents, can those on leave participate in the program? If you value work-life balance, can someone who takes a vacation still realistically make their quarterly bonus?
  

Equity and Options

If your organization does not offer equity/stock options, feel free to skip ahead. 

Your approach to equity will depend on the option pool and how those options are currently divided amongst your team. Generally, organizations will offer more equity rewards to employees who joined earlier. As the business matures, the organization can adjust its equity strategy. Here are a few points to consider when developing your equity framework:

• How do you want to balance your cash and equity? If offering a lower salary, will you offer a higher amount of equity?
• Will every person in every role get equity?
• Are you granting more equity based on when someone has joined, role type, or both? 
• What is your vesting schedule?
• What is your stance on refresher grants? How often will you refresh?
• How will you communicate the value of your equity in your pay package? 

All of these should be considered when weighing equity’s impact against salary and other parts of your total compensation.

Step 7: Roll It Out

Congratulations– you’ve got a shiny new compensation strategy! Here’s how to roll it out for maximum impact:

• Update your philosophy. Make sure it reflects all the decisions you’ve made. Again, we’ve included an example of what this could look like at the end of this guide.‍
• Ensure edge cases are resolved. Adjust underpaid employees first. Flag and plan for the ones who are paid above the new bands.‍
• Loop in managers: Train your managers on the new philosophy and process prior to rolling out the changes. They’ll need to explain it to their teams and answer questions about pay in the future.‍
• Educate the team: We highly recommend taking the time to really walk your team through how you built your new strategy. Share how the jobs were matched, what the data shows, and the thought behind the decisions in your compensation philosophy. If you’re using variable pay or connecting it in any other way directly to performance, be sure to explain how it works. In our launch trainings, staff are often eager to know the organization’s stance on pay transparency, how they can grow their salaries, how credible the data sources are, and how inflation impacts their pay (if at all). Addressing these questions upfront during training (even if it means sharing a stance that employees disagree with) goes a long way in providing clarity and building trust with your team.‍
• Plan for transparency: If you hire in a region that requires pay transparency, you can use your new salary bands in any job postings going forward. But first, make sure that the system is fully launched internally and that each employee knows the salary band for their own role. Nobody wants to see a range for their own job for the first time in a hiring ad! As you become more comfortable, you can start sharing more openly between jobs, levels, and departments.
  

Finally, consider dedicating a page in your employee handbook or wiki to compensation. Here, you can share your philosophy, any key dates, ranges if you’re fully transparent, and any other pay information you like.

Step 8: Keep It Going

Your framework isn’t a one-and-done project. Audit it annually. Keep an eye out for patterns or inequities. Adjust your bands as the market shifts.  Auditing is also critical to equitable pay. Look out for patterns when you can. If you have information on your team's gender makeup or other identity factors, is one group disproportionately at the low or high end of the band? Does the reasoning hold up against your process and philosophy?

And above all, be proactive. Sadly, we’ve seen many teams lose great people over pay, either because it was too low, not updated against a market that shifted, or because no one could explain how it worked. Remember those employee surveys where no one felt great about pay? You don’t always need big changes; just helping people understand how pay works and how decisions are made can shift the whole conversation.

Building out structured compensation for the first time can feel like a big job, but it’s also one of the clearest ways to build trust and engagement, plan more confidently, and build a transparent, inclusive culture where people do their best work. 

Happy building!

Team Bright + Early

See more of our pay guides:

The Bright + Early Guide to Ethical Global Pay

The Bright + Early Guide to (Ethical) Global Benefits

So You Want To (or Have To) Roll Out Transparent Pay.

Steal Me — A Sample Compensation Philosophy

This is just a sample format and should not be construed as advice.

Our example organization, MerryGoRound, is a startup disrupting the ice cream space. Although MerryGoRound cannot afford to pay at the top of the market, they are values-driven and can give their employees a stake in the business through equity.

Our mission at MerryGoRound is to delight customers and bring a sense of fun and whimsy to their day. This mission drives our delight-centric culture, where we aim to bring joy to our customers and team. As an organization, we are responsible for ensuring our employees are heard, supported, and cared for, so we invest in our employees through benefits, perks and continuous learning initiatives. We aim to attract and reward employees who champion our values, so our compensation strategy will focus on them.

At MerryGoRound, we value:

• Fun: We'll provide benefits like a rollercoaster allowance, weekly cotton candy delivery, and unlimited sprinkles. We'll reward employees who delight customers and teammates in unexpected ways.
• Teamwork. We value group achievement, so we don't pay commissions. All bonuses will be based on organizational goals and objectives. 
• Personal Care and Growth. We offer an extensive professional development budget, top-of-the-line health benefits and four weeks of annual vacation.
• Customer Obsession. We factor NPS into our organization and team goals.
• Transparency. Transparent compensation decreases bias, confusion, and distraction. MerryGoRound's general salary bands will be included in job postings and in our handbook, but individual salaries will remain private.
  

Total Compensation at MerryGoRound:

MerryGoRound pays at the market compared with organizations of our growth stage, team size, and location. Since we hire employees across California, our compensation rates reflect average rates across California.

MerryGoRound's total compensation package will include:

• A base salary that is tied to one’s role and level
• Equity that is standardized based on level; equity will be given upon joining the organization, and vest on a 4-year schedule with a 1-year cliff.
• Benefits and perks that reflect our values (see above)
  

Salary adjustments: We review salaries twice a year based on market changes and performance. Inflation is part of the market review, however, we do not match inflation year over year due to its uncertainty. Salary reviews will determine employees’ eligibility for a compensation update. All salary adjustments are contingent on our budget. 

Role changes: If an employee progresses to a new role, their title and pay will be updated to reflect the compensation for that new level. This change can be made at any point during the year.

Hiring: As a team that values inclusion, we achieve pay parity between our new hires and existing team members by having a hiring maximum. The salary range you see on our job posting is a portion of our salary band to allow for further growth and development on the team.
To ensure our pay equity practices are met, we do not negotiate outside of our set salary and equity bands. Our salary bands are aligned with our job levels, and we conduct annual market audits to ensure our salary bands are competitive relative to the market.