Developing Competency Based

Salary Structure Workshop

Grading structures: options

and considerations in design
And it is not just about pay!

Agenda

Understanding the dynamics of pay

Definition of grading

Why grading?

The use of grading in managing pay

Various options in designing grading structures:

grading is organization specific

Summary and conclusions

Understanding the dynamics of pay

What are you paying employees for and what do

you want to pay them for?
Job/Role

Performance

Competencies
Working conditions and environment
Market
3

Understanding the dynamics of

pay
Job/Role

Pay for Position

Performance

Competencies

Pay for Performance

Pay for People

Working conditions and environment

Market
4

Trends in what to pay for

Major developments in reward base
from

to
output - results (what)

job weight

age

years in service

limited job scope

job weight

experience

market value

broad job scope / multi-availability

experience

Differentiating factors
blue or white collar
organisation type
phase of development

performance
input - competencies (how)

labour market
need/desire to be innovator
5

Definition grading

A grading ~ classification

is a (for the organization) logical grouping/clustering of

the different jobs by their relative job weight

Which jobs have a similar value for the organization and

do we thus consider as equal?
Which jobs do we consider as higher or lower?

has a big impact on the company culture, atmosphere

and the employee attitudes
defines the status of each employee

Why grading?

Organizations use grades

as a reference framework for the organization / easy

administration;
to make the results of job evaluation easier to
communicate and to manage;
to provide more transparency;
as a basis for remuneration management.

A grading is basically the cornerstone of all HR

processes, most typically

Career paths
Promotions
Compensation & Benefits policy
Training & Development
7

The characteristics of an
optimum grading structure
Applicable across the current organization
Flexible enough to accommodate future growth
Practical, easily understood and culturally suited to the
environment within the Company
Underpinned by a process that differentiates jobs
according to content, scope, size and contribution
Enabling links to appropriate pay market
Low in maintenance
Easily linked into a number of other HR systems and
processes e.g. Performance Management,
Succession Planning, Recruitment, Development, etc.
8

Where do we situate a grading

exercise?

Job Description

Company

DATE: #######

Job Description
JOBTITLE

Job Identification :
Recruiter

Job Description

Date :chart:
Organisation

Depart- KNOW-HOW
PROBL SOLV
ACCOUNTAB
ment SLOT
PNTS SLOT % PNTS SLOT PNTS

TOTAL
PNTS

PROF.
SHRT

Head of Financial Transactions

Finance EII-3

264 E3+

38

100 D4c

132

496

A2

Telecom expert

Support F-I+2

264 E3+

38

100 E-4+

115

479

A1

Lawyer

Legal

E+I3

264 E3+

38

100 E-4+

115

479

A1

Head of Heads

Prod.

EI+3

264 E3+

38

100 D4-c

115

479

A1

April 2002

Organisation chart:

Job
description

Evaluation

Grading

JOBS

Job :

Job Identification
:
Job holder:
Irina
Job :
Recruiter
Division :
Human Resources
Job Identification
:
Job holder:
Irina
Reporting to : Head of Department HR Department
Job :
Recruiter
Division :
Human Resources
Date :
April 2002
Job holder:
Irina
Reporting to : Head of Department HR Department
Division :
Human Resources
Date :chart:
April 2002
Organisation
Reporting to : Head of Department HR Department

Exercise

Rank the following jobs from highest to lowest job

size:

Management Consultant
Bus driver
Car mechanic
Researcher / product development
Doctor
Professor
Pilot
Secretary

10

From job grades to salary

structure
Job ranking
Jobs

Salary structure

Salary

5
4

2
1
1

Job grades or job structure

11

How Grading is linked to pay

Monthly
Base Pay Ranges
+20%
80,000
-20%

Salary scale
(e.g. x % to y %)
+20%
30,000

Breadth of
grade

-20%

+20%
10,000
-20%

11

10

Grades/ Bands/Levels

12

Determining individual pay

Job Description

Company

DATE: #######

Job Description
Recruiter

Job holder:
Irina
Reporting to : Head of Department HR Department
Division :
Human Resources
Date :
April 2002
Reporting to : Head of Department HR Department
Date :chart:
Organisation

Depart- KNOW-HOW
PROBL SOLV
ACCOUNTAB
ment SLOT
PNTS SLOT % PNTS SLOT PNTS

TOTAL
PNTS

PROF.
SHRT

Head of Financial Transactions

Finance EII-3

264 E3+

38

100 D4c

132

496

A2

Telecom expert

Support F-I+2

264 E3+

38

100 E-4+

115

479

A1

Lawyer

Legal

E+I3

264 E3+

38

100 E-4+

115

479

A1

Head of Heads

Prod.

EI+3

264 E3+

38

100 D4-c

115

479

A1

April 2002

Organisation chart:

Job description

Evaluation

Grading

Pay structure

Salary evolution
NAME
PUSKIN
DOSTOJEVSKI
BOLSOI
WODKA
KREMLIN
ARBAT
BASIL
HERMITAGE

Bonus pay-out

FUNCTION
Economist
Accountant
Lawyer
Specialist
Recruiter
Architect
Benefits specialist
Translator

Grade
14
14
13
12
12
11
11
11

BASE SAL BONUS BENEFITS

34500
30% car
54700
30% car
34222
20% car
23000
20% car
24590
20% car
23987
15% lunch all.
23008
15% lunch all.
15% lunch all.
12769

+ Salary Database

PEOPLE

Job :

Job Identification
:
Job holder:
Irina
Job :
Recruiter
Division :
Human Resources

JOBS

JOBTITLE

Job Identification :

Options in designing
classifications/grading
structures

14

Grades are organization specific

A classification/grading is a management tool and should support

the goals of the organization

It should reflect the organizational structure

The grading structure must fit with the internal value of work
perceptions of the company

The starting point of grades will often be tied to internal

populations: management, specialists, clerical, blue collar

The choice of the width of grades is also company-specific as it

will be the basis for remuneration, promotion and mobility policies

Copying a classification of another organization, competitor,

sector leader, Most Admired wont work
Benchmarking is not a solution

15

Decision points in designing a job

grading structure

The number of structures

The number or levels/grades and width of

classes/grades

Overlaps?

Method/approach for determining job weight and thus

positioning of jobs in grades

Border-management: processes to determine how to

go over border (assessment, re-evaluation of jobs,
role of HR as system owner, promotion panels)

16

Grading - How it can look like (1)

Traditional: One Structure
Narrow Grades

Broad Bands

17

Grading - How it can look like (2)

Multiple Structures
CEO
2

Directors

Management
I

Project
Manager

C
O
R
E

2
3
Sr. Experts
Experts

Supervisors
I

Supervisors
II

Directors

Officers
-C

SUPPORT STAFF I

SUPPORT STAFF II

10
11

S
U
P
P
O
R
T

Management
II

Project
Manager

Experts

Supervisors
I

Officers
-S

Junior Officers
-S

SUPPORT STAFF I

SUPPORT STAFF II

SUPPORT STAFF III

10

SUPPORT STAFF III

SUPPORT STAFF IV

11

SUPPORT STAFF IV

18

Grading - How it can look like (3)

Overlapping Grades

19

Grading - How it can look like (4)

Technical Ladders
reference
level and job
unit range

LEGAL

STRATEGIC
PLANNING

HR &
COMMUNICATIONS FINANCE

Head of Policy &

Planning
Assistant Director,
HR

19

Assistant
Finance
Director

INFORMATION
TECHNOLOGY

Assistant
Director, IT &
Business
Planning
Head of Projects

18

Asst Secretary
Legal

Head of
Communication

OPERATIONS

Head of
Operational
Services
Assistant
Director,
Procurement &
Systems

Financial
Controller
Information
Systems
Manager

17

16

SYSTEMS &

Principal
Legal Officer

Land Manager

Principal Systems Systems

Developer
Operations
Manager

20

Grading how it can look like (5)

Creating parallel ladders Job Grades and Personal Grades

21

Broadbanding versus
narrow grades

22

Two fundamental types of grading

structure

small bands

Similar job weight by grade

Increase in responsibility = promotion
Career perspective in terms of climbing the hierarchy

broad bands

Limited number of broader grades

Jobs of significantly different job weights are in the same
grade
Increase in job weight: not necessarily promotion in grade

23

Broadbanded pay structure

Base
Salary

New reference salaries

Extra pay possibilities

Grade
24

Why broadbanding? A changing

organizational environment
From

Hierarchical strong structure

Towards
Flat ~ networks

Taylorised

(Flexibly) integrated
Decentralized

Centralized

Job specific jargon

Ad hoc solutions

Common (company) language

System solutions
Integrated company strategy

No strategic connections

People create value

People are a resource

25

Why adopt broadbanding?

To de-emphasize status, hierarchy and job size

To reduce pressure for promotion and re-grading

To accommodate more flexible working patterns

To explicitly reduce the number of grades in the pay

structure to match a delayered organizational
structure

To allow and focus on individual performance and

contribution as a driver for higher pay without the
need for formal promotion

To accommodate a range of market pay requirements

To move towards more individual pay determination

26

Risks and disadvantages of

broadbanding

Risk of the sky is the limit

Drive for promotion disappears

Status differences disappear

Lower positioned jobs are being referred to higher

reference salaries, ... benefits

Salary benchmarking is more difficult

The most documented negative effect of

broadbanding is a drastic increase in salary costs

27

Three ways to control pay.

Grades and
Ranges
Performance
Management

Pay Increase
Budgets

Loosening
Looseningthe
thereigns
reignsininone
onearea...
area...
puts
putsincreased
increasedtension
tensionon
onthe
theothers
others
28

Managing pay in broad bands

29

Work Culture should be considered in

designing a grading structure
Four Work Culture Models
Process Driven

Functional
R

Cu
st
om

y
ilit
b
a
eli

Te
ch
no
lo
g

y
11

12

10

Network
er

ilit
b
i
ex
Fl

1
2
3

9
8

Time Based

30

Functional Work Culture

Functional

Process Driven

Aims

Process Driven
Apply specialized
technologies
New applications - same
technology
Limit risks

Work Design

Rewards
Job- or grade-based salaries
Management incentives only
Career-based benefits
Years of service

Hierarchy
Specialized position
Network

Task team

People Management
Functional expertise
Internal training and
development

Time Based
11 12 1
10
2
3
9
4
8
7 6 5

Performance Management
Goal oriented
Functional criteria

31

Process Work Culture

Functional

Aims
Customer satisfaction
Continuous improvement

Process Driven

Customers/individualized
services/products

Work Design
Customer driven processes
Work teams

Network

Roles

Rewards
Salaries and increases based
on proficiencies and team
competencies
Skill-based value-added bands
Competency-based
Team-based output incentives
Career-based benefits

People Management
Team-based
Process proficiencies and
team competencies

Time Based
11 12 1
10
2
3
9
4
8
7 6 5

Performance Management
Process not an event
Team-based
Proficiencies and
competency-based

32

Network Work Culture

Functional

Aims

Rewards

Temporary alliances
Market creation/penetration

Salaries based on market rate

and individual contracts
Negotiated and market driven
sharing of gains
Venture incentives

Mobility
Process Driven

Work Design
Situation determined roles
Relationships not structure
Venture driven

Network

Time Based
11 12 1
10
2
3
9
4
8
7 6 5

Team distribution of rewards

Negotiated benefits

People Management
Development of personally
relevant proficiencies/
competencies
External resources used as
needed

Performance Management
Based on personal and
partnership output
Success of the overall venture

33

Time-Based Work Culture

Functional

Aims
Responsiveness, flexibility
Market dominance
Maximized return on assets

Process Driven

Network

Time Based
11 12 1
10
2
3
9
4
8
7 6 5

Work Design
Flat structure
Situation determines roles
Program teams
Multi-functional expertise

Rewards
Salaries and increases based
on proficiencies and
competencies
High-leverage incentives based
upon program success
Project milestone incentives
Team-based equity
Career-based benefits

People Management
Development of matrix
Relevant proficiencies/
competencies
Immediate availability and
value emphasized

Performance Management
Star system
Critical contributions
Milestone driven

34

Cultural Impact on Grading

Process
Wider grades to reduce
sensitivity to small job
changes (size ranges)
Wider pay ranges to enable
focus on performance and
competence
Functional

Network
Process Driven

Cu
st
om

y
ilit
b
lia
e
R
Te
ch
no
lo
g

y
11

Functional
Emphasis on job size
Relatively narrow grades
Pay movement through
range based on
performance

Very few, very broad roles

Individual contracts
Primary focus on individual
skill/ competency/
performance

12

10

Network
er

ilit
b
i
ex
Fl

1
2
3

9
8

Time Based

Time-Based
Reduced emphasis on job size
Broad bands
Primary focus on individual skill/
competency/ contribution
35

To sum up...

36

To sum up
Grading:
IS

IS NOT

A different representation of the

organizational structure;
supplementary, company-specific

Replacing the organizational structure;

contradictory

A means to group jobs based on

assessments of various criteria

Changing the nature or content of jobs

or where they fit in the organizational
structure

A framework to define different

levels/ ranges of pay based on
relative internal value and external
relativities

A set of rigid rules that support leveling

and abolition of uniqueness

A system that provides

recommendations regarding pay

A Manager (it will not make the

decision for you)

37

And Its Not Just About Pay

Impacting
Impacting pay
paydecisions
decisionsis
isonly
onlyone
one of
of the
the
purposes
purposesof
ofGrading
Grading
Grading can facilitate:

Differentiating internal contribution

Designing work and organization

Understanding/defining career paths

Planning for succession and continuity

Linking professional behaviors and characteristics with work

and work levels/ grades

38