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What is a job grade?

​By Mansour Baker, SHRM-CP

Posted  22 November 2020

What is a job grade?

​Job grade is defined as the dividing up of the rank order of jobs in a consistent and logical way to group jobs of a broadly similar size for the purpose of administering salaries and benefits. 

​Grade structures need to reflect the following:

• The internal logic of any job evaluation process
  • Similar jobs are in the same grade
  • A just noticeable difference between jobs

• The organizing concepts
  • Direct reports should not be in the same grade as their manager
  • Typically, there are 2 to 3 steps between a manager and his/her direct reports

• The organizational context
  • How important is status and re-grading?
  • Does the organization favor a high level of flexibility (broad banding)
  • Do employees expect frequent ‘small step’ promotions (narrow banding)

Job Grading Options

The preferred method of developing a grade structure is to apply appropriate breaks in the hierarchy which separate clusters of similar jobs.

There are typically 3 options for consideration:

1. A narrow (single) banded hierarchical structure (one step Just Noticeable Difference between each band).
2. A broader banded structure with fewer levels and greater emphasis on performance related progression within a level than on promotion to higher grades - this could be an option at a later stage when the organization has put in place a robust Performance Management system.
3. A mixed model using the application of both the narrow banded and broad banded structures, typically deploying the former for the lower grades where the expectation is for more frequent promotion and the latter for the more senior grades where the job holder has a more significant impact on job size.

​In selecting a preferred structure review the rank order of evaluations in a consistent and logical way and group those of a broadly similar size within the same grade for the purpose of administering salaries and benefits. CEO is typically kept out of the grading structure.

Broad Banding versus Narrow Banding

The Features of Broad Banding are:

• De-emphasizes status, hierarchy, and job size
• Designed to reduce pressure for promotion and re-grading
• Reduces the number of grades in the pay structure; could match a delayered organizational structure.
• Easier to accommodate more flexible working patterns - e.g. project work and rotations
• Easier to accommodate a range of market pay requirements
• Offers a focus on individual performance and contribution as the driver for higher pay within a well-established Performance Management Process

The Features of Narrow Banding are: 

• Contains ‘Pay Drift’ within the grade
• Aligns with cultural norms in most countries
• Allows for frequent promotions which is culturally important in the development and progression of employees
• Recognizes fine differences in status, hierarchy, and job size
• Requires less sophisticated processes for positioning and progressing individuals within the salary range for their grade
• Tends to differentiate between members of the same reporting team

​Broad Bands can incorporate two or more Narrow Bands - managing a Broad Banded structure requires well trained staff and a reasonably sophisticated performance management system to avoid employees ‘drifting up the band’.

Exhbit1

Broad Banding Structure

Grade Option Comparison

Narrow Band Advantages:

• Frequent progression and recognition
• Tight financial control in salary administration
• Maintains hierarchical differentiation

Narrow Band Disadvantages:

• Puts emphasis on job evaluation to be rigorous and sensitive to ‘noticeable’ differences
• Reinforces status differentials
• Managers within the same reporting team may be graded differently
• May shift emphasis from managing performance and developing to salary administration and grading

Broad Band Advantages:

• Good fit with organization structure design at the executive levels
• Progression is based on bettering performance rather than promotion because of role differentiation
• Communicates the need to better manage performance
• Broader pay ranges associated with grades will allow greater freedom in compensating employees based on their performance

Broad Band Disadvantages:

• Recognition through promotion is more limited and might be counter-cultural especially when less experience employees would be motivated by regular promotion
• In the future, and as some roles grow, reporting roles with reporting relationships might end up in the same grade, something that might not be acceptable

Mixed Model Advantages:

• Same benefits as Broad Band at the managerial levels
• Same benefits as Narrow Band at professionals and technical levels where the bulk of manpower number are
• Aligns broad bands including focus on progression in accountability and performance. The narrow bands with focus on growth in experience and capability

Mixed Model Disadvantages:

• To administer effectively, their needs to be reasonable capability in both approaches

Best Practice Approach

An analysis of the approaches taken by major organizations reveals that the Mixed Model best meets organizational and cultural criteria.

​Typically, the rationale behind the mixed model approach is to group those jobs that report directly to the top job in an organization (CEO, General Manager etc.) in to either 1, 2 or 3 broad bands.

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