What is the salary grade?
A salary grade is a level of predetermined compensation for a specific position in the organization. The levels are set as per the requirement and needs of the organization and expressed with the help of a salary range.
Pay grade is expressed as a range of salary from the lowest possible amount to the highest wage based on the employee’s credentials for the job position. The organization follows a formal process based on a point system to evaluate jobs and to determine a perfect fit for the pay scale with the job.
In the pay grade format, the workers are placed within a pay level that is based on their educational qualification and degree, skills, know-how, expertise in a field as well as work experience. All the jobs in an organization are placed at a specific grade so that there is a perfect balance between the external and internal equity.
Reasons to create jobs salary grade scale
Some of the important reasons for creating a pay grade are as follows-
- One of the most important reasons for an organization to create pay grade is that it wants to account for the job positions that do not have a benchmark data due to a lack of comparable position in the market
- Another reason to have a pay grade system is for the internal alignment of jobs in the company.
- The primary reason for implementing a pay grade system is because developing pay ranges helps to group individual ranges in a common grade that will be easy to track as well as administer.
How does a pay grade work?
A pay grade is an amount that an employee receives for a specific position. It is included in the compensation system and is defined by the responsibilities that have to be undertaken within the framework of that job position and the authority that comes with that position.
Higher pay grades, as well as more responsibilities, are offered to employees who have to manage the workload of other employees in the organization. The increase in the responsibilities of management positions simultaneously boosts the level of payment within the pay grade.
In the salary grade graph, the performance of the employees and the length of the service is shown with the help of the horizontal axis, and the vertical steps are the representation of the level of responsibility needed as per the requirement of the job position.
The grades are set after a lot of deliberation between hiring managers from the human resources department, company executives, as well as other essential stakeholders. The discussions are about skill levels, know-how, and credentials required for a given position and the grades of the salary that will suit the position. The pay grade offers a distinctive framework for compensation by referring to the amount that will be suitable for each level of the employment process.
The pay grade is a type of salary negotiation, especially in the public sector domain, as well as union-represented positions. The grades are not fixed at a specific amount but vary within a suitable range so that it looks competitive and also give the management room to negotiate with the individual who will be hired for the post.
The pay grade informs an individual how much money he can earn. Factors like education, qualification, job experience have a direct impact on the pay grade. The steps within the confines of each grade differ between organizations. A salary grade for a specific position, for instance, managerial level for Ashok Leyland, can be quite different from the grade at Rohan Limited.
If there are several steps in the pay grade, then the employees will feel as if they are achieving desired success along every step because their compensation is also increasing. This is applicable if the employee is in the same job position. It is not possible to move laterally or get a promotion so that an employee can move the next steps of pay grade as quickly as possible.
Even overlapping in the salary amount at each level is very common to the salary grade system. Suppose grade A has few steps from 10,000 dollars to 20,000 dollars, and grade B also has several levels from 15000 dollars to 25000 dollars, then at one time or another, the pay grades will overlap with each other.
The advantages of pay grade are as follows-
- Implementing a system of pay grade is considered beneficial as it ensures that each level of the unit can attract suitable employees depending upon the job responsibilities and requirements.
- The pay grade system helps in boosting the rate of employee retention
- It minimizes the rate of employee turnover as employees do not want to leave the organization when they know that the next pay grade is within reach
- The desire to reach the next pay grade decreases the rate of absenteeism in the company
- In the private sector, pay grades and salary negotiation is common, and the employees feel that they will be able to upgrade their salary easily via a high level of efficiency. This results in higher organizational productivity.
- For an employee, a pay grade is a way of being rewarded for his better performance and commitment to the organization.
Designing a perfect pay grade in an organization that has innumerable employees with various levels of expertise and qualification is a difficult task, no doubt. Still, if done successfully, it can bring forth positive changes in the company that will help in taking it to new heights of success and growth.