26 GRADE AND PAY STRUCTURES

Contents
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Grade structure defined Pay structure defined Criteria for grade and pay structures Types of grade and pay structures Narrow or single graded structures: features Model of single graded structure Advantages of a single grade structure Disadvantages of a single grade structures Broad-banded structures: features Development of broad bands Band architecture choices Broad banding in a manufacturing company A broad-banded structure with bands defined by job evaluation, zones and reference points Broad-banded structures: advantages Broad-banded structures: disadvantages Career family structure: features Model of a career family structure Career family structure: advantages Career family structure: disadvantages Job family structure: features 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Model of a job family structure Job family structure: advantages Job family structure: disadvantages Career progression in a career/job family structure Combined broad-banded structure with job families Combined job family structure with broad bands Broad bands within a job family structure Structure design: general considerations Number of grades: design considerations Width of grades: design considerations Steps in introducing a new grade and pay structure Defining grades Grade boundary decisions following job evaluation Single grade structure: pay range design Scattergram of evaluations and pay with pay practice trend line Designing a broad-banded structure Designing a career family structure: main stages Designing a career family structure: flow chart

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. 2. 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. 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. By reference to benchmark jobs or roles that have already been placed in the grade, band or job family level.

3.

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.

. 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. 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. fairness. characteristics and needs of the organization and its employees facilitate the management of relativities and the achievement of equity.CRITERIA FOR GRADE AND PAY STRUCTURES Grade and pay structures should: ‡ ‡ ‡ ‡ ‡ ‡ ‡ be appropriate to the culture.

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. .

¶Compa-ratios¶ can be used to measure the relationship between actual and policy rates of pay as a percentage. which can be as high as 50 per cent. ‡ The pay ranges provide scope for pay progression which is usually related to performance. There may be eight or more grades in a structure. For example.000 respectively.000 and £30. ‡ Grades may be defined by job evaluation in points terms.000 and the minimum and maximum are £20. often referred to as the reference point or target salary.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.000 to £28. ‡ µMid-point management¶ techniques analyse and control pay policies by comparing actual pay with the midpoint which is regarded as the policy pay level. the compa-ratio is 100 per cent. ‡ Differentials between pay ranges are typically around 20 per cent and there is usually an overlap between ranges.000. 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 µmarket stance¶). competence or contribution. If the two coincide. Pay ranges are also described as a percentage of the mid-point. by grade definitions or simply by the jobs that have been slotted into the grades. a µ40 per cent¶ range could span from £20. ‡ 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. the range could be expressed as 80 per cent to 120 per cent where the mid point is £25. . 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. The mid-point. for example.

MODEL OF A SINGLE GRADED STRUCTURE £ .

The structure facilitates the achievement of equal pay for work of equal value. . The structure is easy to manage and explain to staff.ADVANTAGES OF A SINGLE GRADE STRUCTURE ‡ ‡ ‡ ‡ A well-defined framework is provided for managing relativities. fixing rates of pay and pay progression are clearly defined. Processes for grading.

‡ ‡ . there will be constant pressure for upgrading. leading to grade drift. They can take the form of an extended hierarchy. They can function rigidly. 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. which may no longer be appropriate in a flatter organization.DISADVANTAGES OF A SINGLE GRADE STRUCTURE ‡ ‡ If there are too many grades. 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 µbands¶ (see slide 12). defined by job evaluation. D (2001) Pay: The New Dimensions. The make up of a band (µband architecture¶) can vary ± there may be no infrastructure at all. zones or segments (see slide). M and Brown. or there may be reference points. CIPD . Typically. ‡ ‡ ‡ ‡ ‡ ‡ Source: Armstrong. 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. level of competence or market rates. The band boundaries are often. Jobs may be placed in the bands purely by reference to market rates or by a combination of job evaluation and market rate analysis. Each band can span the pay opportunities previously covered by a number of separate grade and pay ranges. while the rest had bands with widths between 75 per cent and 100 per cent. but not always. 62 per cent had bands with widths between 50 per cent and 75 per cent. there are between four and six bands in such structure. 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. Bands define the scope for lateral progression and are sometimes called career bands. 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.

DEVELOPMENT OF BROAD BANDS 30% 100% Narrow grades Broad bands .

BAND ARCHITECTURE CHOICES ‡ No infrastructure ‡ Reference points x ‡ Zones x x x ‡ Target salary ranges x x .

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 A JE Scores 1000+ 900±999 800±899 700±799 600±699 500±599 D E 400±499 300±399 200±299 100±199 Pay £ B C 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. Reduce the time spent analysing and evaluating jobs because there are fewer levels between which distinctions need to be drawn. Dismantle the overly structured and bureaucratic approach of typical multigraded structures.

Broad banding can create the following equal pay problems. because of their existing higher rates of pay. which are doomed in many cases if proper control of the system is maintained. (b) the broader pay ranges within bands mean that they include jobs of widely different values or sizes which may result in gender discrimination. (a) reliance on external relativities (market rates) to place jobs in bands can reproduce existing inequalities in the labour market. broad-banded structures have introduced zones and are therefore looking more and more like conventional narrow graded structures. Employees may be concerned by the apparent lack of structure and precision. Broad banding can build employee expectations of significant pay opportunities. . are assimilated in the upper reaches of bands. (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. It can be difficult to explain to people how broad banding works and how they will be affected. This is because of its considerable disadvantages as listed above plus the fact that in an attempt to overcome them. ‡ ‡ ‡ ‡ Broad banding is not so popular as it once was. and decisions on movements within bands can be harder to justify objectively than in other types of grade and pay structures.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. The result is that interest has turned to career and job family structures as described in the following slides.

but are differentiated by the level of responsibility. The ranges of pay for the levels are the same in all families.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. 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. ‡ ‡ ‡ ‡ . 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 .

The structure facilitates the achievement of equal pay for work of equal value. Provide for rewards to be based on personal progress and career development.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. Processes for grading. fixing rates of pay and pay progression are clearly defined. ‡ ‡ ‡ .

CAREER FAMILY STRUCTURE: DISADVANTAGES ‡ ‡ ‡ can be divisive by creating occupational µsilos¶ 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 µsilos¶ 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 Career path Job family C .

000 .COMBINED BROAD-BANDED STRUCTURE WITH JOB FAMILIES band D job family 1 job family 2 job family 3 job family 1 job family 2 job family 3 job family 1 job family 2 job family 3 job family 1 job family 2 job family 3 band C band B band A £10.000 £40.

000 Job family A Job family B Job family C .£60000 COMBINED JOB FAMILY STRUCTURE WITH BROAD BANDS £12.

Freedom to decide on methods and priorities limited. eg Band 2 Senior administrators and support workers. 200±300 points. 300±400 points. Work generally standardized. ‡ Flexibility achieved by scope to create new reference points for changed roles or in response to market pressures without resource to role evaluation. limited freedom to act. Provide fairly complex administrative and support services. eg Band 1 Administrators and support workers. X £ X £ X £ £ X + . ‡ Pay range for band determined by rates/ranges of pay for roles allocated to the band.BROAD BANDS WITHIN A JOB FAMILY STRUCTURE Defining bands ‡ Typically 6-7 bands ‡ Band descriptions and. Role requirements clearly defined. X £ X £ X £ ‡ Scope for pay progression related to competence may be provided up to reference point or beyond. 1 2 3 4 5 6 Managing within bands ‡ µReference points¶ define rate for a highly competent role holder ± aligned to market rates and relative size of roles in band. Provide basic administrative and support services. often. Work largely prescribed. role evaluation scores define bands and the basis for allocating roles to bands.

.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).

‡ ‡ . The range of pay and points scores to be accommodated. The problem of µgrade 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. taking into account the scope for progression. 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 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.NUMBER OF GRADES: DESIGN CONSIDERATIONS ‡ ‡ ‡ ‡ The range and types of roles to be covered by the structure. The fact that within a given range of pay and responsibility. the size of increments in a pay spine and equal pay issues.

may not have the same opportunity as men to progress to the upper regions of the range. who are more likely to have career breaks than men. Decisions on the value of increments in a pay spine ± if it is believed that the number of increments should be restricted. Decisions on the number of grades ± the greater the number. then it is necessary to increase the value of the increments. In a broad-banded structure.WIDTH OF GRADES: DESIGN CONSIDERATIONS ‡ ‡ Views on the scope that should be allowed for progression. male jobs may therefore cluster towards the top of the range while women¶s may cluster towards the bottom. the smaller the width. are a major cause of pay gaps between men and women simply because women. Equal pay considerations ± wide grades. the range of market rates and job evaluation scores covering the jobs allocated to the band. but that the number of grades should also be limited. especially extended incremental scales. for equal pay or other reasons. ‡ ‡ ‡ .

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 .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 Consult management Involve and communicate with employees Design principles (as appropriate): ‡ number and width of grades/bands ‡ band infrastructure ‡ career/job families Design process: ‡ develop job evaluation.

.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. .

variations between differentials should be kept to a minimum. Calculate the costs of bringing them up to the minimum. If possible this should indicate the median rate and the upper and lower quartiles. 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). Obtain information on the market rates for benchmark jobs where available. Agree policy on how the organization¶s pay levels should relate to market rates ± its µmarket stance¶. Compare the practice and market reference points in each range and decide on the range reference point. eg the median rates. Review the impact of the above pay range decisions on the pay of existing staff. This pay practice data can be plotted as illustrated in slide 35. Decide on the range of pay around the reference point. Decide on the extent. Calculate the average market rates for the benchmark jobs in each grade according to pay stance policy. These should provide scope to recognize increases in job size and.SINGLE GRADE STRUCTURE: PAY RANGE DESIGN ‡ ‡ List the jobs placed within each grade on the basis of job evaluation. if any. to which pay ranges should overlap. Examine the pay differentials between reference points in adjacent grades. 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. ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ . This produces the range market reference point. so far as possible. The most typical arrangement is to allow 20 per cent on either side.

SCATTERGRAM OF EVALUATIONS AND PAY WITH PAY PRACTICE TREND LINE * *** £ ** ** ** * ** * ** *** *** **** *** **** ** **** ** * ** A B C 300-399 *** * ** ** * ** ** ** *** ** Pay practice trend line D 400-499 E F G H 800-899 100-199 200-299 500-599 600-699 700-799 Grades and job evaluation score ranges .

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 BROAD-BANDED STRUCTURE ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ define objectives decide number of bands decide infrastructure for bands. . eg reference 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 job families Chose method of job evaluation Decide and define levels Develop role profiles and match to levels Validate through job evaluation Conduct market survey Iterate Calculate assimilation cost Formulate and agree assimilation policies Communicate and implement .

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