Establishing Pay Grades: An Essential Step for Growing Companies

How Pay Grades Protect and Serve Your Business

By Tripp Ritter,

Once a company reaches about 100 employees or more, they have grown to a size where it may be time to move beyond pricing jobs on an ad-hoc basis. The management of salaries, when each individual job has its own pay range, becomes increasingly challenging. Putting pay grades in place eases the management burden and provides additional benefits, including protection against pay equity claims, defining career paths for employees and protecting the company from overly aggressive hiring practices. We discussed this tricky transition with PayScale Compensation Consultant , Melissa Quade, CCP and below you can read her advice.

Protect Against Equity Claims
No company wants to face pay inequity claims. But, should they occur, a well-implemented, legally-defensible pay grade structure can help your defense. As long as your employees are within their established grades and ranges, you have a better chance of avoiding legal troubles. Creating that structure, though, usually requires professional help, as well as review at least every few years.

Show the Career Path
A well-constructed pay grade system can help highlight career paths for each job category. For example, tech companies often have multiple grades for software developers. As long as transparency is not a concern, recruiters and managers can show both existing and prospective employees what is necessary to advance their careers, and what level of salary they can expect to make once they move up. Money is a motivator, so making it clear what is needed to earn more of it can increase employee engagement.

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Minimize Unrealistic Salary Offers
Labor budgets typically dominate a company’s annual expenditures. Pay grades with established, data-supported minimums and maximums can help to control this personnel budget.

Because incentives for hiring managers are often built on their departmental performance, they may seek to recruit highly-qualified, high-dollar candidates without considering the company’s financial limits. If too many managers are allowed to hire expensive candidates, the company’s labor budget becomes in danger of running dry.

With a pay grade system in place, managers can only hire within the salary ranges defined in the system. This may mean missing out on some top-level hires, but it keeps the personnel budget in check and corporate goals safe.

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