The outcome of a job evaluation exercise is usually a new or revised grade and pay structure. The purpose of this chapter is to describe how job evaluation can be used to initiate or contribute to the design process for the various types of grade and pay structures that are available. The chapter starts with definitions of grade and pay structures and continues with an assessment of the considera- tions affecting their design. It then describes how job evaluation is used in the design process – generally and for particular structures.
Equal value considerations are dealt with at the end of the chapter.
GRADE AND PAY STRUCTURES
At the outset, a distinction needs to be made between grade and pay structures: grade structures contain a sequence or hierarchy of grades, bands or levels into which, on the basis of job evaluation, groups of jobs which are broadly comparable in size are placed;pay structures define the ranges of pay that are attached to grades – pay levels will be influenced by equity and market rate considerations.
Grade structures
In grade structures, jobs are initially allocated into grades, bands or levels following a job evaluation exercise. The subsequent mainte- nance of the grade structure by grading or regrading jobs is also car- ried out with the help of analytical job evaluation or, sometimes, by a process of ‘matching’ the role profiles of jobs under review with grade definitions.
There may be a single structure with a sequence of narrow grades (often between nine and twelve), or there may be a broad-banded structure with relatively few much wider bands (often four to five).
In between these two there might be what is sometimes called a ‘fat grade’ structure with between six and eight grades. Alternatively, the structure may consist of a number of career or job families which group jobs with similar characteristics in terms of activities and knowledge and skill requirements together. Each family is typ- ically divided into six to eight levels. Career family structures define career paths in each family and have common grades and pay ranges across all families. Job family structures also define career paths but the families have different grades and pay ranges.
The grades, bands or levels may be defined in one or other of the following ways or a combination of them:
ឣ 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;
ឣ 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;
ឣ by reference to benchmark jobs or roles that have already been placed in the grade, band or job family level.
Pay structures
Pay structures provide a framework for managing pay. They con- tain the organization’s pay ranges or scales for jobs grouped into grades, bands or job family levels. These define the different levels of pay for jobs or groups of jobs by reference to their relative inter- nal value as determined by job evaluation, to external relativities as established by market rate surveys and, where appropriate, to negotiated rates for jobs. They provide scope for pay progression in accordance with performance, competence, contribution or service.
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. For example, a ‘40 per cent’ pay range linked to a grade could span from £20,000 to £28,000. Pay ranges are often described as a percentage of the mid-point; for example, the range could be expressed as 80 to120 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 main varieties of pay structures follow the pattern of grade structures referred to above:
ឣ narrow graded structures with fairly small pay ranges attached to them;
ឣ ‘fat graded’ structures with fewer grades and wider pay ranges;
ឣ broad-banded structures with a limited number of broad bands within each of which the range of pay may be much greater than in either of the above two structures – reference points and pay zones may be placed within the bands and these define the rates and range of pay for the individual jobs or clusters of jobs allocated to each band;
ឣ career or job family structures within which each family will have levels to which pay ranges are attached.
In addition, pay spines are found in the public and not-for-profit sectors which consist of a series of pay points to which are attached grades.
There may be a single pay structure covering the whole organiza- tion or there may be more than one structure for staff and another for manual workers. Senior executives are sometimes treated separately.
Pay structures may incorporate spot rates or individual job grades as described below.
Spot rates
‘Spot rates’ are rates of pay for jobs or people which are not located within grades and for which there is no defined scope for pay pro- gression. They may be used for some jobs such as those at senior management levels which the organization wants to keep separate from the grade structure, usually in order to have more scope to pay what they want. Some organizations do not have a graded structure at all and only use spot rates. Spot rates may be attached to a per- son rather than a job. Jobholders may be eligible for incentive bonuses on top of the spot rate but consolidated increases in pay related to performance simply result in a new spot rate for the per- son. Relativities between spot rates can be determined by job eval- uation, but the key factor is often market relativities for the job or the market worth of the person.
Spot rates are frequently used by organizations that want the maximum amount of scope to vary the pay for individuals or jobs.
They are often adopted by small or start-up organizations which do not want to be constrained by a formal grade structure and prefer to retain the maximum amount of flexibility. Spot rates are also the traditional basis for manual jobs. The focus of this chapter, howev- er, is on graded pay structures because they provide a better basis for managing grading and pay consistently within a defined frame- work and, as such, are the most typical approach.
Individual job grades
Individual job grades are, in effect, spot rates to which a defined pay range of, say, 10 to 15 per cent on either side of the rate has
been attached to provide scope for pay progression based on performance, competence or contribution. Again, the mid-point of the range is fixed by reference to job evaluation and market rate comparisons.
Individual grades are attached to jobs, not persons, but there may be more flexibility for movement between grades than in a conven- tional grade structure when, for example, a person has expanded his or her role and it is considered that this growth in the level of responsibility needs to be recognized without having to upgrade the job. Individual job grades may be restricted to certain jobs, for example more senior managers where flexibility in fixing and increasing rates of pay is felt to be desirable.
The ‘zones’ that are often established in broad-banded structures have some of the characteristics of individual job grades.