If you go in and they are grading you x and your salary is going to be in the 95% range of grade x...you need to negotiate to be made level y more than you need to give back dollars.
While you may think my reasoning funny or non-seq I can tell you what I've seen in practice. Higher payed in lower grades get scrutinized differently, all other things being equal they will get less on the annuals. At review time being at 100% of grade and not having been promoted is viewed as a negative.
Or...if you are at 90..and you see 95% as a possibility you could also go for >non-financials< like and extra weeks vacation.
Peer group is less of an issue unless its a team that you are playing in. Point in first paragragh is that you should try to be placed in the higher group first. Personally, I too could give a rat's patooty what anyone in the org thinks. Thats what makes me so attractive :-)