There are 5 considerations to be made in the design of a grade structure.
Consideration 1: Number of Grades
The considerations to be taken into account when considering the number of grades are:
The ranked order of jobs: This might identify the existence of clearly defined clusters of jobs at the various level in the hierarchy between which there are significant differences in job size.
The range and types of roles to be covered by the structure.
The range of pay and point scores to be accommodated. Specific numbers prescribed by the particular job evaluation system that the company implements, for example 11 for Paterson and 21 for Peromnes.
Decisions made on where grade boundaries should be placed at the end of a job evaluation exercise which has produced a ranked order of jobs. Through the exercise, we may be able to identify clearly defined clusters of jobs at the different hierarchical levels due to differences in job size.
The difference in pay levels between the highest and lowest paid jobs in the job hierarchy.
The number of levels of responsibility in the organizational hierarchy; and the required flexibility. Organizations that require high flexibility and flatter structures need fewer grades.
The fact that within a given range of pay and responsibility, the greater the number of grades the smaller their width, and vice versa.
What is regarded as the desirable width of a range, after considering the scope for progression, the size of increments in a pay spine and equal pay issues.
The problem of increased “grade drift” because there are too many narrow grades. Grade drift are unjustified upgradings in response to pressure or job evaluation has been carried out laxly.
Consideration 2: Width of Grades
The factors affecting decisions on the width of job grades are:
The scope that should be allowed for progression.
Considerations for equal pay between men and women; with attention given to the that in wide grades there is a strong likelihood that male jobs may cluster towards at the top of the pay range and women’s jobs may cluster towards the bottom.The result is a pay gap. The reason is because women are more likely to have career breaks than men.
The number of grades – The greater the number of grades, the smaller the width of each grade.
The value of each increments in a pay spine – The value of the increments need to be increased if a decision is made both to limit the number of increments as well as the number of grades at the same time. One reason for imposing the limitations is rhe issue of equal pay.
Consideration 3: Pay Ranges
The pay range or width of a grade is the difference between the maximum and the minimum pay that can be earned for each pay grade. This range can be expressed in terms of the maximum and minimum pay levels as percentages of the midpoint pay (compa-ratio). The mid-point would have a compa-ratio of 100.
Pay ranges are often “taller” in the higher grades than the lower grades. The assumption is that in the senior level jobs, there is more scope for individual variation in performance (Leap & Crino 1993)
Consideration 4: Pay Differentials
Pay differentials refer to the differences the midpoints of each pay range. The size of the differentials depends on the assessment of the amount by which the level of responsibility of jobs in the higher grade exceeds those in the grade in the grade immediately below it (Armstrong 1993)
Consideration 5: Grade Overlap
Grade overlap refers to the extent to which the minimum pay of the higher pay grade is overlapped by the maximum pay of the pay grade immediately below it. The extent of overlap depends largely on aspects such as the size of the pay differentials and the number and range of grades.
Essentially it provides for flexibility to accommodate the fact that an inexperienced newcomer on a higher grade may initially be less of a value to the organization than a well-performing and experienced employee on a lower grade.
Source: Job Evaluation: A Guide to Achieving Equal Pay written by Armstrong, Cummins, Hastings, Wood