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

2
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

 job weight output - results (’what’)

 age 
 performance

 years in service input - competencies (‘how’)

 limited job scope 
 job weight

 experience 
 market value

 broad job scope / multi-availability

 experience

Differentiating factors
 blue or white collar  labour market
 organisation type  need/desire to be innovator
 phase of development

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

6
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?

Top Management grade

Job Description Company DATE: ####### TM
Job Description
Job Identification : JOBTITLE Depart- KNOW-HOW PROBL SOLV ACCOUNTAB TOTAL PROF. White and blue collar jobs
Job : Recruiter ment SLOT PNTS SLOT % PNTS SLOT PNTS PNTS SHRT
Job Description
Job Identification
Job holder: Irina : Head of Financial Transactions Finance EII-3 264 E3+ 38 100 D4c 132 496 A2 9
Job :
Division :
Recruiter
Human Resources Telecom expert Support F-I+2 264 E3+ 38 100 E-4+ 115 479 A1 8
Job Identification
Job holder: Irina :
Reporting to : Head of Department – HR Department
Job : Recruiter
Lawyer Legal E+I3 264 E3+ 38 100 E-4+ 115 479 A1
7
Division : Human Resources
Head of Heads Prod. EI+3 264 E3+ 38 100 D4-c 115 479 A1
6
Date : April 2002
Job holder: Irina
Reporting to : Head of Department – HR Department

5
Division : Human Resources
Date :chart:
Organisation April 2002
Reporting to : Head of Department – HR Department

Date :chart: April 2002

4
Organisation
3
Organisation chart:
2
1

JOBS
Job Evaluation Grading
description

9
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 Salary structure

Jobs
Salary

1 2 3 4 5 6
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
-20%
grade

+20%
10,000

-20%
11 10 9 8 7 6 5 4 3 2 1

Grades/ Bands/Levels
12
 Determining individual pay
Top Management grade
Job Description Company DATE: ####### TM Monthly
Base Pay Ranges
Job Description
Job Identification : JOBTITLE Depart- KNOW-HOW PROBL SOLV ACCOUNTAB TOTAL PROF. White and blue collar jobs
Job : Recruiter ment SLOT PNTS SLOT % PNTS SLOT PNTS PNTS SHRT
Job Identification
Job holder: Irina : Head of Financial Transactions Finance EII-3 264 E3+ 38 100 D4c 132 496 A2 9

JOBS
Job :
Division :
Recruiter
Human Resources Telecom expert Support F-I+2 264 E3+ 38 100 E-4+ 115 479 A1 8
Job holder: Irina
Reporting to : Head of Department – HR Department Lawyer Legal E+I3 264 E3+ 38 100 E-4+ 115 479 A1
7
Division : Human Resources
Head of Heads Prod. EI+3 264 E3+ 38 100 D4-c 115 479 A1
6
Date : April 2002
Reporting to : Head of Department – HR Department

Date :chart:
Organisation April 2002 5
4
Organisation chart:
3
2
11 10 9 8 7 6 5 4 3 2 1

Grades/ Bands/Levels

Job description Evaluation Grading Pay structure

Salary evolution
Management Review
1
NAME FUNCTION Grade BASE SAL BONUS BENEFITS
PUSKIN Economist 14 34500 30% car
2
DOSTOJEVSKI Accountant 14 54700 30% car
BOLSOI Lawyer 13 34222 20% car
3
WODKA Specialist 12 23000 20% car
C B A KREMLIN Recruiter 12 24590 20% car
ARBAT Architect 11 23987 15% lunch all.
Target Development BASIL Benefits specialist 11 23008 15% lunch all.

PEOPLE
Achievement Plan HERMITAGE Translator 11 12769 15% lunch all.

Bonus pay-out
+ Salary Database
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’ won’t 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
2 Directors

Management
3 I 3
Project Management
4 Sr. Experts 4
Manager II
Project
5 Experts S 5 Manager
Experts

Supervisors Officers U Supervisors Officers

C 6 6
I -C P I -S
O
7
Supervisors
P 7
Junior Officers
R II -S
O
E 8 SUPPORT STAFF I 8 SUPPORT STAFF I
R
9 SUPPORT STAFF II T 9 SUPPORT STAFF II

10 SUPPORT STAFF III 10 SUPPORT STAFF III

11 SUPPORT STAFF IV SUPPORT STAFF IV

11

18
Grading - How it can look like (3)
Overlapping Grades

19
Grading - How it can look like (4)
“Technical Ladders”
reference
LEGAL STRATEGIC HR & INFORMATION SYSTEMS &
level and job PLANNING COMMUNICATIONS FINANCE TECHNOLOGY OPERATIONS
unit range
Head of Policy & Assistant Assistant Head of
Planning Finance Director, IT & Operational
Assistant Director, Director Business Services
HR Planning
19 Assistant
Head of Projects Director,
Procurement &
Systems

Asst Secretary Head of Financial

18 Legal Communication Controller

Information
17 Systems
Manager

Principal Land Manager Principal Systems Systems

16 Legal Officer Developer Operations
Manager

20
Grading – how it can look like (5)
Creating parallel ladders “Job Grades” and “Personal Grades”

21
Broadbanding versus
narrow grades

Narrow Grades Broad Bands

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 Towards
 Hierarchical strong structure  Flat ~ networks

 Taylorised  (Flexibly) integrated

 Decentralized
 Centralized
 Common (company) language
 Job specific jargon
 System solutions
 Ad hoc 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
tensionononthe
theothers
others

28
 Managing pay in broad bands

1. By Job size zones 2. By skill/competency zones

€ €

Job size Job size

29
 Work Culture should be considered in
designing a grading structure
Four Work Culture Models

Process Driven

y Cu Network
Functional
bilit st
om
elia er
R
Te
ch y
n ol b ilit
og i
ex
y Fl
11 12
1
10 2
9 3
8 4
7 6 5

Time Based

30
Functional Work Culture

Functional Aims Rewards

Process Driven
• Apply specialized
technologies • Job- or grade-based salaries
• New applications - same • Management incentives only
technology
• Career-based benefits
• Limit risks
Process Driven • Years of service
Work Design
• Hierarchy
• Specialized position
• Task team
Network
People Management
• Functional expertise
• Internal training and
development
Performance Management
Time Based
11 12 1 • Goal oriented
10 2
9
8 4
3 • Functional criteria
7 6 5

31
Process Work Culture

Functional
Aims
Rewards
• Customer satisfaction
• Salaries and increases based
• Continuous improvement
on proficiencies and team
• Customers/individualized competencies
services/products
Process Driven • Skill-based value-added bands
Work Design • Competency-based
• Customer driven processes • Team-based output incentives
• Work teams • Career-based benefits
• Roles
Network
People Management
• Team-based
• Process proficiencies and
team competencies
Performance Management
Time Based
11 12 1 • Process not an event
10 2
9
8 4
3 • Team-based
7 6 5
• Proficiencies and
competency-based

32
Network Work Culture

Functional Aims Rewards

• Temporary alliances • Salaries based on market rate
• Market creation/penetration and individual contracts
• Mobility • Negotiated and market driven
sharing of gains
Process Driven Work Design
• Venture incentives
• Situation determined roles
• Team distribution of rewards
• Relationships not structure
• Negotiated benefits
• Venture driven
Network People Management
• Development of personally
relevant proficiencies/
competencies
• External resources used as
needed
Time Based
11 12 1 Performance Management
10 2
9
8 4
3 • Based on personal and
7 5
6 partnership output
• Success of the overall venture

33
Time-Based Work Culture

Functional
Aims Rewards
• Responsiveness, flexibility • Salaries and increases based
• Market dominance on proficiencies and
• Maximized return on assets competencies
Work Design • High-leverage incentives based
Process Driven
upon program success
• Flat structure
• Project milestone incentives
• Situation determines roles
• Team-based equity
• Program teams
• Career-based benefits
• Multi-functional expertise
Network
People Management
• Development of matrix
• Relevant proficiencies/
competencies
• Immediate availability and
Time Based
11 12 1 value emphasized
10 2
9
8 4
3 Performance Management
7 6 5
• “Star” system
• Critical contributions
• Milestone driven

34
 Cultural Impact on Grading
Process
Network
• Wider grades to reduce
sensitivity to small job Process Driven • Very few, very broad roles
changes (size ranges) • Individual contracts
• Wider pay ranges to enable • Primary focus on individual
focus on performance and skill/ competency/
competence performance

y Cu Network
Functional
bilit st
om
elia er
R
Te
ch y
no ilit
lo
gy l exib
F
11 12
1
10 2
Functional 9 3
• Emphasis on job size 8 4
7 6 5 Time-Based
• Relatively narrow grades
• Pay movement through • Reduced emphasis on job size
Time Based
range based on • Broad bands
performance • Primary focus on individual skill/
competency/ contribution

35
To sum up...

36
To sum up
Grading:
IS
A different representation of the
organizational structure;
supplementary, company-specific
A means to group jobs based on
assessments of various criteria
A framework to define different
levels/ ranges of pay based on
relative internal value and external
relativities
A system that provides
recommendations regarding pay
IS NOT
Replacing the organizational structure;
contradictory
Changing the nature or content of jobs
or where they fit in the organizational
structure
A set of rigid rules that support leveling
and abolition of uniqueness
A “Manager” (it will not make the
decision for you)
37
And It’s Not Just About Pay

Impacting
Impactingpay
paydecisions
decisionsis
isonly
onlyone
oneof
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