The Top Three Reasons to Create Pay Grades

What Pay Grades Can Do For Your Organization

By Stacey Carroll, PayScale.com

We talk about pay grades all the time here at PayScale, but not everyone understands why they are so important. So, without further ado, here are our top three reasons to adopt pay grades.

3.      Easier to Administer Than Individual Ranges

While this is not the primary reason for developing pay ranges, it is important. In job-based ranges, each job has a different pay range.  In some cases, the difference in one range and another may be quite small, even insignificant. 

In grade-based ranges, you take all the individual ranges and group them into grades which are easier to administer and track. It has the added benefit of making talking about pay ranges easier too.

2.      Allow for Decisions About Internal Alignment

When you create pay ranges for your organization, you use market data as the guide for determining into which pay grade each job falls. Smart comp/HR pros validate the placement of a job into a grade with their own understanding of the internal alignment of jobs within their organization. 

For example, if your accountant positions are valued at the same level as your HR generalist and also have the same scope (say they are both individual contributors,) you may want to ensure that these jobs are at the same level in your organization.

In some cases, the market and scope data will indicate that two jobs belong in different grades, but for reasons of internal equity, the company might prefer them to be in the same grade. HR professionals have the choice to adjust. Grades allow organizations to balance the desire to be externally competitive with the goal of maintaining internal alignment.

1.     Allow Placement for Jobs That Don’t Have a Market Benchmark

Without a doubt, the number one reason for an organization to adopt pay grades is to account for those jobs which lack benchmark data. World at Work suggests that the best practice with benchmarking is to ensure that at least 70 percent of positions in the organization have benchmark data. At PayScale, we find that most clients can use market data to benchmark 85-90 percent of positions. This still leaves some positions without a market comparable position. 

The advantage of having grades and pay ranges associated with grades is that the organization can slot the position into an appropriate pay range based on its alignment with comparable jobs within the organization. The job then inherits the pay range from the grade placement. Proper use of grades eliminates the need to have market data for every position in the company.

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