26 GRADE AND PAY STRUCTURES

Contents

1 Grade structure defined 21 Model of a job family structure

2 Pay structure defined 22 Job family structure: advantages
3 Criteria for grade and pay structures 23 Job family structure: disadvantages
4 Types of grade and pay structures 24 Career progression in a career/job family structure
5 Narrow or single graded structures: features 25 Combined broad-banded structure with job
6 Model of single graded structure families
7 Advantages of a single grade structure 26 Combined job family structure with broad bands
8 Disadvantages of a single grade structures 27 Broad bands within a job family structure
9 Broad-banded structures: features 28 Structure design: general considerations
10 Development of broad bands 29 Number of grades: design considerations
11 Band architecture choices 30 Width of grades: design considerations
12 Broad banding in a manufacturing company 31 Steps in introducing a new grade and pay
structure
13 A broad-banded structure with bands defined by
job evaluation, zones and reference points 32 Defining grades
14 Broad-banded structures: advantages 33 Grade boundary decisions following job evaluation
15 Broad-banded structures: disadvantages 34 Single grade structure: pay range design
16 Career family structure: features 35 Scattergram of evaluations and pay with pay
17 Model of a career family structure practice trend line
36 Designing a broad-banded structure
18 Career family structure: advantages
37 Designing a career family structure: main stages
19 Career family structure: disadvantages
38 Designing a career family structure: flow chart
20 Job family structure: features
 GRADE STRUCTURE DEFINED

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. There may be a single structure
with a sequence of narrow grades (often eight to 12), or relatively few broad bands (often four to
five). Alternatively, the structure may consist of a number of career or job families each divided
typically into six to eight levels (a career or job family structure groups jobs with similar
characteristics together).
The grades, bands or levels may be defined in one or other of the following three ways or a
combination of them:
1. By means of a range of job evaluation points – jobs are allocated to a grade, band or level
if
their job evaluation scores fall within a range or bracket of points.
2. In words which describe the characteristics of the work carried out in the jobs that are
positioned in each grade or level – these grade, band or level definitions may set out the
key activities and the competences or knowledge and skills required at different points in
the hierarchy.
3. By reference to benchmark jobs or roles that have already been placed in the grade, band
or job family level.
 PAY STRUCTURE DEFINED

A pay structure provides a framework for managing pay. A grade structure becomes a pay
structure when pay ranges or brackets are defined for each grade, band or level, or when grades
are attached to a pay spine. In some broad-banded structures reference points and pay zones
may be placed within the bands and these define the range of pay for jobs allocated to each
band.
Graded, broad-banded or family structures contain the organization’s pay ranges or scales for
jobs grouped into grades, bands or job family levels. They define 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, where appropriate,
to negotiated rates for jobs provide scope for pay progression in accordance with performance,
competence, contribution or service.
Pay spines consist of a hierarchy of pay or spinal column points between which there are pay
increments and to which are attached grades.
Spot rates are specific rates for jobs for which there are no defined ranges of pay through which
pay can progress.
There may be a single pay structure covering the whole organization or, more there may be one
structure for staff and another for manual workers. Executive directors are sometimes treated
separately and are often on spot rates with, additionally, various bonus or share schemes.
 CRITERIA FOR 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 administering gradings and pay
• be capable of adapting to pressures arising from market rate changes and skill
shortages, operational flexibility and continuous development
• provide scope as required for rewarding performance, contribution and
increases in skill and competence
• 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

The main types of grade and pay structures as described in the following slides are:

• narrow or single graded structures

• broad-banded structures
• career family structures
• job family structures.
 NARROW OR SINGLE GRADED STRUCTURES:
FEATURES

The features of narrow or single graded structure as illustrated on slide 6 (called that to distinguish them from
broad-banded or career structures) include:
• There is a sequence of fairly narrow job grades into which jobs of broadly equivalent value are placed.
• A pay range is attached to each grade. The maximum of each range is typically between 20 per cent and
50 per cent above the minimum. For example, a ‘40 per cent’ range could span from £20,000 to £28,000.
Pay ranges are also described as a percentage of the mid-point; for example, the range could be
expressed as 80 per cent to 120 per cent where the mid point is £25,000 and the minimum and maximum
are £20,000 and £30,000 respectively. The mid-point, often referred to as the reference point or target
salary, may be regarded as the rate for a fully competent individual and is usually aligned to market rates
in accordance with company policies on the relationship between its pay levels and market rates for
similar jobs (this is sometimes called the ‘market stance’).
• The pay ranges provide scope for pay progression which is usually related to performance, competence or
contribution. There may be eight or more grades in a structure.
• Grades may be defined by job evaluation in points terms, by grade definitions or simply by the jobs that
have been slotted into the grades.
• Differentials between pay ranges are typically around 20 per cent and there is usually an overlap between
ranges, which can be as high as 50 per cent. This overlap provides more flexibility to recognize that a
highly experienced individual at the top of a range may be contributing more than someone who is still in
the learning curve portion of the next higher grade.
• ‘Mid-point management’ techniques analyse and control pay policies by comparing actual pay with the mid-
point which is regarded as the policy pay level. ’Compa-ratios’ can be used to measure the relationship
between actual and policy rates of pay as a percentage. If the two coincide, the compa-ratio is 100 per cent.
MODEL OF A SINGLE GRADED STRUCTURE

£
 ADVANTAGES OF A SINGLE
GRADE STRUCTURE

• A well-defined framework is provided for managing relativities.

• The structure facilitates the achievement of equal pay for work of equal value.
• Processes for grading, fixing rates of pay and pay progression are clearly
defined.
• The structure is easy to manage and explain to staff.
 DISADVANTAGES OF A SINGLE
GRADE STRUCTURE

• If there are too many grades, there will be constant pressure for upgrading,
leading to grade drift.
• There may be problems in assimilating the present grade and pay structures into
a common graded structure if there are significant differences in the ranges of
incremental points between the various existing grade and pay structures.
• They can take the form of an extended hierarchy, which may no longer be
appropriate in a flatter organization.
• They can function rigidly, which is at odds with the requirement of flexibility in
some organizations.
 BROAD-BANDED STRUCTURES:
FEATURES

• The number of grades is compressed into a relatively small number of much wider ‘bands’ (see slide 12).
• Each band can span the pay opportunities previously covered by a number of separate grade and pay
ranges.
• Typically, there are between four and six bands in such structure.
• The range of pay in each band is wider than in a traditional graded structure and research conducted by
Armstrong and Brown* established that in organizations with broad bands, 62 per cent had bands with
widths between 50 per cent and 75 per cent, while the rest had bands with widths between 75 per cent
and 100 per cent.
• Pay is managed more flexibly than in a conventional graded structure and increased attention is paid to
market relativities – flexibility is achieved by being able to respond rapidly to changes in roles, level of
competence or market rates.
• Bands define the scope for lateral progression and are sometimes called career bands.
• The band boundaries are often, but not always, defined by job evaluation.
• Jobs may be placed in the bands purely by reference to market rates or by a combination of job evaluation
and market rate analysis.
• The make up of a band (‘band architecture’) can vary – there may be no infrastructure at all, or there may
be reference points, zones or segments (see slide).
• Bands can be described by an overall description of the jobs allocated to them (senior management etc)
or by reference to the generic roles they contain.

Source: Armstrong, M and Brown, D (2001) Pay: The New Dimensions, CIPD
 DEVELOPMENT OF BROAD BANDS

30%

100%

Narrow grades Broad bands

 BAND ARCHITECTURE CHOICES

• No infrastructure

• Reference points

x x x

• Zones
x x x

• Target salary ranges

 BROAD BANDING IN A
MANUFACTURING COMPANY

Senior management
30–60
Management
20–35

Professional 13–25
Support
10–15.5
Support
7–12.5
 A BROAD-BANDED STRUCTURE WITH
BANDS DEFINED BY JOB EVALUATION,
ZONES AND REFERENCE POINTS

Band JE Scores Pay £

1000+
A
900–999
800–899
B
700–799

C 600–699
500–599
400–499
D
300–399

E 200–299
100–199

pay zone (reference

point not shown on
chart)
 BROAD-BANDED STRUCTURES:
ADVANTAGES

• Pay can be managed more flexibly.

• Provide a role specific and performance management focus on reward.
• Dismantle the overly structured and bureaucratic approach of typical multi-
graded structures.
• Reduce the time spent analysing and evaluating jobs because there are fewer
levels between which distinctions need to be drawn.
 BROAD-BANDED STRUCTURES:
DISADVANTAGES

• Broad-banded structures are harder to manage than narrower graded structures in spite of
the original claim that they would be easier – they make considerable demands on line
managers as well as HR.
• Broad banding can build employee expectations of significant pay opportunities, which are
doomed in many cases if proper control of the system is maintained.
• It can be difficult to explain to people how broad banding works and how they will be
affected, and decisions on movements within bands can be harder to justify objectively than
in other types of grade and pay structures.
• Employees may be concerned by the apparent lack of structure and precision.
• Broad banding can create the following equal pay problems, (a) reliance on external
relativities (market rates) to place jobs in bands can reproduce existing inequalities in the
labour market, (b) the broader pay ranges within bands mean that they include jobs of
widely different values or sizes which may result in gender discrimination, (c) women may
be assimilated at their present rates in the lower regions of bands and find it impossible or
at least very difficult to catch up with their male colleagues who, because of their existing
higher rates of pay, are assimilated in the upper reaches of bands.

Broad banding is not so popular as it once was. This is because of its considerable
disadvantages as listed above plus the fact that in an attempt to overcome them, broad-banded
structures have introduced zones and are therefore looking more and more like conventional
narrow graded structures. The result is that interest has turned to career and job family structures
as described in the following slides.
 CAREER FAMILY STRUCTURE:
FEATURES

• A career structure is a single graded structure sliced up into job families – a job
family consists of jobs that are related through the activities carried out and the
basic knowledge and skills required, but are differentiated by the level of
responsibility, skill or competence required.
• Each job family is divided into a number of levels.
• Levels are defined by means of a range of job evaluation scores so that all jobs
scored within a range for a level are allocated to that level and parallel levels
across all the job families are defined by the same range of points.
• The ranges of pay for the levels are the same in all families.
• Levels are further described by reference to accountabilities and skills and
knowledge or competence requirements thus defining a career ladder within and
between families.
MODEL OF A CAREER FAMILY STRUCTURE

£ JE points

Career families
 CAREER FAMILY STRUCTURE:
ADVANTAGES

• Map out career paths by defining the competences required at different levels
and showing clearly how progression can take place within and between job
families.
• Provide for rewards to be based on personal progress and career development.
• The structure facilitates the achievement of equal pay for work of equal value.
• Processes for grading, fixing rates of pay and pay progression are clearly
defined.
 CAREER FAMILY STRUCTURE:
DISADVANTAGES

• can be divisive by creating occupational ‘silos’

• require more effort to design than other types of structure (eg developing
competence hierarchies)
• can be cumbersome to administer.
 JOB FAMILY STRUCTURE:
FEATURES

As for career family except that the job families may have different ranges of pay for
each level.
MODEL OF A JOB FAMILY STRUCTURE

Job families
 JOB FAMILY STRUCTURE:
ADVANTAGES

• map out career paths by defining the competences required at different levels
and showing clearly how progression can take place within and between job
families
• provide for rewards to be based on personal progress and contribution
• can accommodate any different progression ranges (incremental scales) that
exist between job families
• enable pay for different job families (market groups) to reflect market rates.
 JOB FAMILY STRUCTURE:
DISADVANTAGES

• can be divisive by creating occupational ‘silos’

• may be more difficult to achieve equity between job families than in a single
grade structure and therefore may create equal pay problems
• require more effort to design than other types of structure (eg developing
competence hierarchies)
• can be cumbersome to administer.
 CAREER PROGRESSION IN A CAREER/
JOB FAMILY STRUCTURE

Band 6

Band 5

Band 4

Band 3

Band 2

Band 1

Job family A Job family B Job family C

Career path
 COMBINED BROAD-BANDED STRUCTURE
WITH JOB FAMILIES

job family 1
job family 2
band D
job family 3
job family 1
job family 2
band C
job family 3
job family 1
band B job family 2
job family 3
job family 1
band A job family 2
job family 3

£10,000 £40,000
 COMBINED JOB FAMILY STRUCTURE
£60000 WITH BROAD BANDS

£12,000
Job family A Job family B Job family C
 BROAD BANDS WITHIN A JOB FAMILY STRUCTURE
Defining bands
• Typically 6-7 bands 1 2 3 4 5 6

• Band descriptions and, often,
role evaluation scores define
bands and the basis for
allocating roles to bands.
Managing within bands
• ‘Reference points’ define rate
for a highly competent role
holder – aligned to market rates
and relative size of roles in band.
• Scope for pay progression
related to competence may be
provided up to reference point
or beyond.
• Pay range for band determined
eg Band 1 Administrators and support workers. Provide basic
administrative and support services. Work largely prescribed, limited
freedom to act. Role requirements clearly defined. 200–300 points.
eg Band 2 Senior administrators and support workers. Provide fairly
complex administrative and support services. Work generally
standardized. Freedom to decide on methods and priorities limited.
300–400 points.
X X X
£ £ £
X X X
£ £ £

by rates/ranges of pay for roles

£
• Flexibility achieved by scope to
allocated to the band.
create new reference points for
X +
changed roles or in response
to market pressures without
resource to role evaluation.
 STRUCTURE DESIGN: GENERAL
CONSIDERATIONS

• number of grades
• width of grades
• overlap between grades
• range of jobs and pay
• range of job evaluation points
• pay progression
• number of structures (career or job family).
 NUMBER OF GRADES:
DESIGN CONSIDERATIONS

• The range and types of roles to be covered by the structure.

• The range of pay and points scores to be accommodated.
• The number of levels in the organizational hierarchy (this will be an important
factor in a broad-banded structure).
• Decisions on where grade boundaries should be placed following a job
evaluation exercise that has produced a ranked order of jobs – this might
identify the existence of clearly defined clusters of jobs at the various levels in
the hierarchy between which there are significant differences in job size.
• The fact that within a given range of pay and responsibility, the greater the
number of grades the smaller their width and vice versa – this is associated with
views on what is regarded as the desirable width of a range, taking into account
the scope for progression, the size of increments in a pay spine and equal pay
issues.
• The problem of ‘grade drift’ (unjustified upgradings in response to pressure or
because job evaluation has been applied laxly) which can be increased if there
are too many narrow grades.
 WIDTH OF GRADES:
DESIGN CONSIDERATIONS

• Views on the scope that should be allowed for progression.

• Equal pay considerations – wide grades, especially extended incremental
scales, are a major cause of pay gaps between men and women simply
because women, who are more likely to have career breaks than men, may not
have the same opportunity as men to progress to the upper regions of the
range; male jobs may therefore cluster towards the top of the range while
women’s may cluster towards the bottom.
• Decisions on the number of grades – the greater the number, the smaller the
width.
• Decisions on the value of increments in a pay spine – if it is believed that the
number of increments should be restricted, for equal pay or other reasons, but
that the number of grades should also be limited, then it is necessary to
increase the value of the increments.
• In a broad-banded structure, the range of market rates and job evaluation
scores covering the jobs allocated to the band.
STEPS IN INTRODUCING A NEW GRADE AND PAY STRUCTURE
Analyse:
• present arrangements
• business case for change
• readiness for change

Chose:
• type of structure
• job evaluation method

Project planning:
• set objectives
• decide responsibilities and timing
Involve and
Consult communicate
Design principles (as appropriate):
management • number and width of grades/bands with
• band infrastructure employees
• career/job families

Design process:
• develop job evaluation, market
pricing, pay progression processes
• conduct job evaluation and market
pricing programmes
• design and cost structure

Implement:
• assimilate jobs to structure
• implement pay progression plans
 DEFINING GRADES

• range of job evaluation points

• grade definition
• by reference to generic jobs in grades.
 GRADE BOUNDARY DECISIONS
FOLLOWING JOB EVALUATION

• natural break in points scores

• group jobs with common features together
• take account of organizational hierarchy
• don’t place boundaries between jobs mainly carried out by men and those
mainly carried out by women
• grade width in points terms should represent a significant step in demand as
measured by job evaluation scores
• take account of costs.
 SINGLE GRADE STRUCTURE:
PAY RANGE DESIGN
• List the jobs placed within each grade on the basis of job evaluation.
• For each grade set out the range of pay for job holders and calculate their average or
median rate of pay (the pay practice point). This pay practice data can be plotted as
illustrated in slide 35.
• Obtain information on the market rates for benchmark jobs where available. If possible this
should indicate the median rate and the upper and lower quartiles.
• Agree policy on how the organization’s pay levels should relate to market rates – its
‘market stance’.
• Calculate the average market rates for the benchmark jobs in each grade according to pay
stance policy, eg the median rates. This produces the range market reference point.
• Compare the practice and market reference points in each range and decide on the range
reference point.
• Examine the pay differentials between reference points in adjacent grades. These should
provide scope to recognize increases in job size and, so far as possible, variations
between differentials should be kept to a minimum.
• Decide on the range of pay around the reference point. The most typical arrangement is to
allow 20 per cent on either side.
• Decide on the extent, if any, to which pay ranges should overlap.
• Review the impact of the above pay range decisions on the pay of existing staff. Establish
the number of staff whose present rate of pay is above or below the pay range for the
grade into which their jobs have been placed and the extent of the difference between the
rate of pay of those below the minimum and the lowest point of that pay range. Calculate
the costs of bringing them up to the minimum.
 SCATTERGRAM OF EVALUATIONS AND PAY
WITH PAY PRACTICE TREND LINE

* **
** **
* *
*** **
* **
*** **
£
** **
*
*** *** ***
**
**** ** **
***
**** ** **** Pay practice trend line

** ** *
A B C D E F G H
100-199 200-299 300-399 400-499 500-599 600-699 700-799 800-
899
Grades and job evaluation score ranges
 DESIGNING A BROAD-BANDED STRUCTURE

• define objectives
• decide number of bands
• decide infrastructure for bands, eg reference points, zones
• define the bands
• prepare role profiles for benchmark jobs
• match the profiles to bands
• obtain market rates
• evaluate benchmark jobs
• decide on reference points
• define zones
• define pay ranges for bands
• define bands in terms of job evaluation points.
 DESIGNING A CAREER FAMILY STRUCTURE:
MAIN STAGES

• define families
• define levels within families in terms of activities and competences and by job
evaluation
• use job evaluation to ensure equity within and between families
• decide on range of pay for each family level
• decide on method of pay progression within families.
DESIGNING A CAREER FAMILY STRUCTURE: FLOW CHART
Strategic decision to develop
career family structure

Chose and define Chose method of

job families job evaluation

Decide and define

levels

Develop role profiles and Validate through

match to levels job evaluation

Conduct market
survey

Calculate Formulate and agree

Iterate
assimilation cost assimilation policies

Communicate and
implement