Pay grading – choosing your structure

Many organisations have a formal grading structure to provide a logic to pay rates, job roles and career paths. How effective the structure is will depend on how the scheme has been designed specifically for the organisation, and the reward data behind it.

The first stage in any design programme will be choosing the right structure, and whether that is one that covers all employees in your organisation or different ones for different types of roles. To help prepare your organisation for this first step, we answer some of the questions that we are often asked and highlight when you might need to review your structure.

Should we segment employees into separate pay grading structures?

This depends entirely on your organisation. Pay grading aims for consistency, so it may be counterproductive to segment staff into many multiple structures. However, if you want (or need) to treat different staff groupings differently then you can separate them into separate grading structures.

When might we consider separate pay grading structures?

It can be useful for organisations to think about their own requirements as well as the wider environment when deciding whether to operate more than one grading structure. The following are some of the factors to consider.

When might we consider separate pay grading structures?

It can be useful for organisations to think about their own requirements as well as the wider environment when deciding whether to operate more than one grading structure. The following are some of the factors to consider.

• To reflect alignment with different labour market

A desire to reflect different labour markets – an example here would be a not-for-profit operating in the healthcare sector – where one group of staff, for example healthcare providers and their immediate managers and supervisors, are closely aligned to one market (such as the healthcare sector) while another group of staff (such as senior leadership and professional services staff) may need to reflect a different market, such as the not-for-profit sector more broadly.

• If you are an organisation employing niche specialists

Another instance whereby certain groups of staff may need to be treated differently would include an organisation employing niche specialists whose rates of pay, as identified by the market data, command a premium. It may not be possible to include these staff in the same structure as other employees whose roles do not command this premium – examples here might be specialist finance or technology roles which are deemed to be business critical. In this scenario you may wish to create a separate structure for these individuals and adjust the pay ranges accordingly, for example, basing the associated pay range around a higher metric than is used for other employees in the main structure (eg the upper quartile rather than the median or median plus a certain percentage). However, there are other ways of dealing with those in niche roles, such as assigning them to a higher point in the pay range and keeping everyone within the same structure.

• Different geographical locations

You might also need to reflect different geographical locations and while we don’t recommend being too granular here, there are undeniably variations in the London market, for example, compared to the rest of the UK – so if you have staff in London and others elsewhere in the UK, you might want one structure for London based staff, utilising market data reflecting the London market and another for staff outside of London.

When and how should I update my pay grading structure?

Successful schemes are reviewed regularly, at least annually (or more frequently where the market is deemed to be fast paced). Reviewing less frequently runs the risk of the drift, as the pay ranges fail to keep pace with the market data.
It is not just the market data that needs to be monitored and reviewed, the scheme itself should be reviewed to ensure it is still relevant to the organisation, particularly following times of change – in particular, growth or contraction or any change in the organisation’s mission and objectives.

It is important to ask the following, as part of this review:

• Do the grades still reflect the organisational hierarchy?

• Do internal changes require additional or perhaps fewer grades compared to the original scheme?

• Are the pay points still working; are additional points required or any superfluous?

• Does the organisation operate in different markets and need to broaden the scope of the market data used to populate the ranges?

• Does the organisation now operate in a new location? Does this require an additional structure within the scheme, to cover staff in this new location?

• Do niche roles occupying a higher position in the range still command a premium? If not, how will they be treated going forwards?