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

26 GRADE AND PAY STRUCTURES

Contents

1 Grade structure defined2 Pay structure defined3 Criteria for grade and pay structures4 Types of grade and pay structures5 Narrow or single graded structures: features6 Model of single graded structure7 Advantages of a single grade structure8 Disadvantages of a single grade structures9 Broad-banded structures: features10 Development of broad bands11 Band architecture choices12 Broad banding in a manufacturing company13 A broad-banded structure with bands defined by

job evaluation, zones and reference points14 Broad-banded structures: advantages15 Broad-banded structures: disadvantages16 Career family structure: features17 Model of a career family structure18 Career family structure: advantages19 Career family structure: disadvantages20 Job family structure: features

21 Model of a job family structure22 Job family structure: advantages23 Job family structure: disadvantages24 Career progression in a career/job family structure25 Combined broad-banded structure with job

families26 Combined job family structure with broad bands27 Broad bands within a job family structure28 Structure design: general considerations29 Number of grades: design considerations30 Width of grades: design considerations31 Steps in introducing a new grade and pay

structure32 Defining grades33 Grade boundary decisions following job evaluation34 Single grade structure: pay range design 35 Scattergram of evaluations and pay with pay

practice trend line36 Designing a broad-banded structure 37 Designing a career family structure: main stages38 Designing a career family structure: flow chart

Page 2: HHRMP 26 Grade and Pay Structures

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, bandor job family level.

Page 3: HHRMP 26 Grade and Pay Structures

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.

Page 4: HHRMP 26 Grade and Pay Structures

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.

Page 5: HHRMP 26 Grade and Pay Structures

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.

Page 6: HHRMP 26 Grade and Pay 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.

Page 7: HHRMP 26 Grade and Pay Structures

MODEL OF A SINGLE GRADED STRUCTURE

£

Page 8: HHRMP 26 Grade and Pay Structures

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.

Page 9: HHRMP 26 Grade and Pay Structures

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.

Page 10: HHRMP 26 Grade and Pay Structures

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

Page 11: HHRMP 26 Grade and Pay Structures

30%

100%

Narrow grades Broad bands

DEVELOPMENT OF BROAD BANDS

Page 12: HHRMP 26 Grade and Pay Structures

BAND ARCHITECTURE CHOICES

• Reference points

x x x

• Target salary ranges

• Zones

x x x

• No infrastructure

Page 13: HHRMP 26 Grade and Pay Structures

BROAD BANDING IN A MANUFACTURING COMPANY

Support 7–12.5

Support 10–15.5

Management 20–35

Senior management 30–60

Professional 13–25

Page 14: HHRMP 26 Grade and Pay Structures

1000+

900–999

800–899

700–799

600–699

500–599

400–499

300–399

200–299

100–199

JE Scores Pay £ Band

A

B

C

D

E

pay zone (reference point not shown on chart)

A BROAD-BANDED STRUCTURE WITH BANDS DEFINED BY JOB EVALUATION,

ZONES AND REFERENCE POINTS

Page 15: HHRMP 26 Grade and Pay Structures

• 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: ADVANTAGES

Page 16: HHRMP 26 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.

• 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.

Page 17: HHRMP 26 Grade and Pay Structures

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.

Page 18: HHRMP 26 Grade and Pay Structures

MODEL OF A CAREER FAMILY STRUCTURE

£

Career families

JE points

Page 19: HHRMP 26 Grade and Pay Structures

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.

Page 20: HHRMP 26 Grade and Pay Structures

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.

Page 21: HHRMP 26 Grade and Pay Structures

JOB FAMILY STRUCTURE: FEATURES

As for career family except that the job families may have different ranges of pay for each level.

Page 22: HHRMP 26 Grade and Pay Structures

MODEL OF A JOB FAMILY STRUCTURE

£

Job families

Page 23: HHRMP 26 Grade and Pay Structures

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.

Page 24: HHRMP 26 Grade and Pay Structures

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.

Page 25: HHRMP 26 Grade and Pay Structures

Band 6

Band 5

Band 4

Band 3

Band 2

Band 1

Job family A Job family B Job family C

Career path

CAREER PROGRESSION IN A CAREER/JOB FAMILY STRUCTURE

Page 26: HHRMP 26 Grade and Pay Structures

COMBINED BROAD-BANDED STRUCTURE WITH JOB FAMILIES

job family 1job family 2job family 3

job family 1job family 2job family 3

job family 1 job family 2 job family 3

job family 1job family 2job family 3

band A

band B

band C

band D

£10,000 £40,000

Page 27: HHRMP 26 Grade and Pay Structures

COMBINED JOB FAMILY STRUCTURE WITH BROAD BANDS

£12,000

£60000

Job family A Job family B Job family C

Page 28: HHRMP 26 Grade and Pay Structures

BROAD BANDS WITHIN A JOB FAMILY STRUCTURE

• 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.

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.

• ‘Reference points’ define rate for a highly competent role holder – aligned to market rates and relative size of roles in band.

X X X

• Scope for pay progression related to competence may be provided up to reference point or beyond.

X X X

• Pay range for band determined

by rates/ranges of pay for roles

allocated to the band.

£ £ £

£ £ £

£• Flexibility achieved by scope to create new reference points for changed roles or in response to market pressures without resource to role evaluation.

X +

Defining bands

Managing within bands

Page 29: HHRMP 26 Grade and Pay Structures

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).

Page 30: HHRMP 26 Grade and Pay Structures

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.

Page 31: HHRMP 26 Grade and Pay Structures

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.

Page 32: HHRMP 26 Grade and Pay Structures

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

Design principles (as appropriate):• number and width of grades/bands• band infrastructure• 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

Consult management

Involve andcommunicate

with employees

Page 33: HHRMP 26 Grade and Pay Structures

DEFINING GRADES

• range of job evaluation points• grade definition• by reference to generic jobs in grades.

Page 34: HHRMP 26 Grade and Pay Structures

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.

Page 35: HHRMP 26 Grade and Pay Structures

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.

Page 36: HHRMP 26 Grade and Pay Structures

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*****

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****

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***** **

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***

**

**

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*

** * *

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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

Pay practice trend line

£

SCATTERGRAM OF EVALUATIONS AND PAY WITH PAY PRACTICE TREND LINE

Page 37: HHRMP 26 Grade and Pay Structures

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.

Page 38: HHRMP 26 Grade and Pay Structures

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.

Page 39: HHRMP 26 Grade and Pay Structures

DESIGNING A CAREER FAMILY STRUCTURE: FLOW CHART

Strategic decision to develop career family structure

Chose and definejob families

Decide and definelevels

Develop role profiles andmatch to levels

Validate throughjob evaluation

Conduct marketsurvey

Calculateassimilation cost

Communicate andimplement

Iterate

Chose method ofjob evaluation

Formulate and agreeassimilation policies