Rules of Thumb in Establishing Pay Grade

Features of a Pay Grade Structure

Salary Formula 18A

Source: South African Human Resource Management: Theory & Practice
By Barney Erasmus, Heinz Schenk

Rules of Thumb in Establishing Pay Grade

Salary Formula 18B

Source: Shaping Pay in Europe: A Stakeholder Approach
By Conny Antoni

There are some slight variations in these rules of thumb. Another author provided these points and comments:

  • The salary range is typically +/- 15 to 25 percent of the midpoint.
  • The salary midpoint of a grade is typically 20 to 30 percent higher than the preceding grades salary midpoint.
  • The maximum of a grade may be higher than the minimum of the next higher grade but does not need to be.

There are not a lot of rules one has to follow in setting up a grade structure. It does not have to be mathematically pure. For example the mid-point of grade 9 may be 20% lower than the midpoint of grade 10, whereas the midpoint of grade 10 may only be 15% lower than the midpoint of grade 11.

Often specific pay issues will cause specific changes in the grade structure. For example, there may be a wish to distinguish between a truck driver and a senior truck driver, even though the jobs are almost the same size and would normally be in the same grade. In this case one might split a grade into 2 smaller grades so that the senior driver could be in a higher grade.

The salary range from the top to the bottom of a grade is often narrower for smaller jobs than is for big jobs. The rationale being that there is more latitude in big jobs. However again this is not a rule and one can manage well (or poorly) without it.

Example of Work Table

Salary Formula 18C

Source: World at Work