GRADE AND PAY STRUCTURES

Ian
GRADE STRUCTURES
Could you add one more like this but with a woman rather than a man?
Thanks
Michael

A grade structure consists of a sequence

or hierarchy of grades, bands or levels
into which groups of jobs that are broadly
comparable in size are placed.
 PAY STRUCTURES

A pay structure defines the different

levels of pay for jobs or groups of jobs
by reference to their relative internal
value as determined by job evaluation,
to external relativities as established by
market rate surveys and, sometimes,
to negotiated rates for jobs. It provides
scope for pay progression in
accordance with performance,
competence, contribution or service.

3
 Spot Rates

• For jobs at the top level, or those not

covered by pay structures. These often
do not have room for conventional
progression.
• These can be topped up by incentives.
• Related more to individuals rather than
jobs themselves, exist in small medium
sized organizations.
• Jobs such as cooks, cleaners etc.

4
GUIDING PRINCIPLES: GRADE AND PAY STRUCTURES

Grade and pay structures should:

• be appropriate to the culture, characteristics and
needs of the organization and its employees;
• facilitate the management of relativities and the
achievement of equity, fairness, consistency and
transparency in managing gradings and pay;
• provide scope as required for rewarding
performance, contribution and increases in skill and
competence;
GUIDING PRINCIPLES: GRADE AND PAY STRUCTURES

Grade and pay structures should:

• clarify reward, lateral development and career
opportunities;
• be constructed logically and clearly so that the basis
upon which they operate can readily be
communicated to employees;
• enable the organization to exercise control over the
implementation of pay policies and budgets.
Types of grade and pay structures
MODEL OF A NARROW-GRADED STRUCTURE

£
MODEL OF A BROAD-GRADED STRUCTURE

£
MODEL OF A BROAD-GRADED STRUCTURE

£
 Broad band Broad grade

£
MODEL OF A JOB-FAMILY STRUCTURE

Job families
MODEL OF A CAREER-FAMILY STRUCTURE

Mark
Pay IT HRM Job
ranges eting Evaluation
£ JE points

Career families
 A PAY SPINE

Pay
spine
 MODEL OF SPOT RATE STRUCTURE

£
 MODEL OF INDIVIDUAL JOB RANGE STRUCTURE

£
 TYPES OF GRADE AND PAY STRUCTURES
e-reward grade and pay structures survey 2007

Individual job ranges 30%

Multi-graded 23%
Broad-banded 23%
Spot rates 23%
Broad-graded 21%
Job family 18%
Pay spine 18%
Career family 14%

n = 98 (private sector 67%, public sector 33%)

NB (1) 44% had more than one structure
NB (2) 43% of senior executives had individual job grades or spot
rates compared with 28% of other staff
Designing grade and pay structures
 FLOW CHART: NEW GRADE AND PAY STRUCTURE DESIGN
Analyse present arrangements

Define objectives and guiding principles

Select and
Set up steering Decide on methodology and programme
develop job
group and
evaluation
task force
Choose scheme and define its key features scheme
Communicate and involve throughout programme

Career or job-family Broad-banded

Graded structure
structure structure

Define families Define bands and their Evaluate benchmark

and levels infrastructure jobs

Match benchmark roles Allocate benchmark Design grade

to levels roles to bands structure

Validate through job Validate through job

evaluation evaluation

Design pay Analyse

Design pay structure Design pay structure market
structure
rates

Match remaining roles Match remaining roles Match remaining

to levels to bands roles to grades

Implement Implement Implement

 WHEN DIFFERENT STRUCTURES ARE LIKELY TO BE
APPROPRIATE
Type of When appropriate
structure
Narrow-graded• in a large and bureaucratic organization with well-defined and extended hierarchies
• pay progression expected to occur in small but relatively frequent steps
• the culture attaches significance to status as indicated by gradings
• where some but not too much scope for pay progression is required
Broad-graded • when it is believed that it will be easier to define and differentiate grades
• an existing narrow-graded structure is the main cause of grade drift
• more scope is wanted for pay progression to be related to contribution
Broad-banded • greater flexibility required
• it is believed that job evaluation should not drive grading decisions
• the focus is on rewarding people for lateral development the organization has been delayered
Career family • there are distinct families and different career paths within and between career families that can
be identified
• there is a strong emphasis on career development
• it is believed that career paths need to be defined in terms of competence requirements
Job family • distinct market groups exist which need to be rewarded differently
• ranges of responsibility vary between families
• it is believed that career paths need to be defined in terms of competence requirements
Pay spine • this is the traditional approach, unable to measure contribution fairly and consistently
• ease of administration a major consideration
 DESIGN CONSIDERATIONS
Design consideration Factors to be taken into account

Number of grades, • the range and type of roles to be covered

levels or bands • the range of pay and job evaluation scores to be accommodated
• number of levels (‘value adding tiers’) in the hierarchy
• decisions on where grade boundaries need to be placed
• the width of grade desired (the fewer the bands, the wider the grades)
• the need to avoid grade drift because there are too many grades

Width of grades • views on the scope to be allowed for pay progression

• equal pay considerations – wide grades can create inequalities
• decision on number of grades – the more there are the smaller the width
• the range of market rates and job evaluation scores to be covered
• the costs of assimilation – fewer and wider grades reduce assimilation costs

Differentials • scope to recognize increases in job size

• not too close or too wide

Overlap • need to recognize that an experienced person at the top of one range may be
delivering more added value than someone just starting in the range above
• large overlaps (10% ) or more can create equal pay problems

Pay progression • choice between various forms of contingent pay

E-REWARD GRADE AND PAY STRUCTURE SURVEY
RESPONDENTS’ DOS AND DON’TS

do communicate
do consult, and be
consult, consult don’t transparent
and then decide underestimate
on the system the time and
that fits the cost involved
business strategy

don’t be
surprised if your
do keep it staff are
don’t expect
simple completely
quick results!
underwhelmed
by your efforts
 CONCLUSIONS

• Link to the company strategy – how will the

structure help the business?
• Plan the development/introduction – it will take
time.
• Involve line managers from the outset.
• Keep the structure simple to allow flexibility.
• Have a clear communication plan.
• Think through how salaries will be managed,
jobs will be evaluated, the annual salary
planning process will operate.

This resource is part of a range offered free to academics and/or students using Armstrong’s Handbook of Reward Management Practice, 3rd edition, as part of their course. For more academic resources and other
FREE material, please visit www.koganpage.com/resources and then click on Academic Resources.