Employees are questioning their pay more than ever. Grade level structures may be making it worse.

Grade level structures seem scalable - until they aren’t.

Let’s say a company uses grade levels because they seem easier to manage at scale and easier to communicate to employees.

Haven’t there been times when a manager comes to you and says, “We have this special job that requires a unique skill set - can we carve something out for this?” And then what happens?

You end up making an exception. Maybe even break out a grade structure for certain job families. Now, instead of simplifying, you’ve got more to maintain, more to track and update, and ultimately, more administrative burden.

And here’s the irony - to arrive at a grade level structure, you have to benchmark every job anyway. So why not align pay directly to market pricing instead of forcing roles into rigid levels that often cause misalignment?

Challenges with grade levels:

😵 𝗧𝗵𝗲𝘆 𝗳𝗼𝗿𝗰𝗲 𝗷𝗼𝗯𝘀 𝗶𝗻𝘁𝗼 𝗮𝗿𝘁𝗶𝗳𝗶𝗰𝗶𝗮𝗹 𝗽𝗮𝘆 𝗯𝘂𝗰𝗸𝗲𝘁𝘀 – Roles with market midpoints on the edge of a grade level end up misaligned to the market. A senior software engineer and a senior product marketing specialist might be in the same grade, but their market values can be significantly different. This leads to underpaying (retention risks) or overpaying (wasting budget).

😶 𝗧𝗿𝗮𝗻𝘀𝗽𝗮𝗿𝗲𝗻𝗰𝘆 𝗴𝗲𝘁𝘀 𝗺𝗲𝘀𝘀𝘆 – When employees ask, "How was my pay band determined?" Responding with"You're at Grade Level X" leaves them with more questions than answers. But if you market price by job, you can clearly explain:

“𝘍𝘰𝘳 𝘵𝘩𝘪𝘴 𝘫𝘰𝘣 𝘧𝘢𝘮𝘪𝘭𝘺, 𝘢𝘵 𝘵𝘩𝘪𝘴 𝘭𝘦𝘷𝘦𝘭 𝘢𝘯𝘥 𝘭𝘰𝘤𝘢𝘵𝘪𝘰𝘯, 𝘵𝘩𝘪𝘴 𝘪𝘴 𝘩𝘰𝘸 𝘸𝘦 𝘢𝘳𝘳𝘪𝘷𝘦𝘥 𝘢𝘵 𝘺𝘰𝘶𝘳 𝘱𝘢𝘺 𝘣𝘢𝘯𝘥”. That’s the kind of clarity today’s employees expect.

🫠 𝗘𝘅𝗰𝗲𝗽𝘁𝗶𝗼𝗻𝘀 𝗰𝗿𝗲𝗮𝘁𝗲 𝗰𝗼𝗺𝗽𝗹𝗲𝘅𝗶𝘁𝘆 – Once you start making special cases for unique roles, maintaining a structured framework becomes harder, not easier.

😵💫 𝗣𝗮𝘆 𝗲𝗾𝘂𝗶𝘁𝘆 𝗶𝘀 𝗮𝘁 𝗿𝗶𝘀𝗸 – Broad grade-level structures create room for inconsistency in compensation decisions. When grade levels aren’t more accurately aligned with the market, leaders lose visibility to guidelines needed to maintain pay equity.

If you have too much at stake to drop your grade level system all at once, take a phased approach – transitioning doesn’t have to be all-or-nothing. A phased rollout allows you to transition without disrupting everything at once.

If your organization continues to rely on grades, it’s crucial to ensure they evolve with market trends and employee expectations.

If you keep a grade level structure, make sure to:

♻️ 𝗥𝗲𝗳𝗿𝗲𝘀𝗵 𝗶𝘁 𝗿𝗲𝗴𝘂𝗹𝗮𝗿𝗹𝘆 – Market trends fluctuate by job family and country. If you stick with grade levels, update them at least yearly by market pricing each job to keep pay competitive and aligned with organization's needs.

☑️ 𝗕𝗲 𝗽𝗿𝗲𝗽𝗮𝗿𝗲𝗱 𝘁𝗼 𝗲𝘅𝗽𝗹𝗮𝗶𝗻 𝗶𝘁 𝗰𝗹𝗲𝗮𝗿𝗹𝘆 – Employees expect clear answers. If a grade level system makes pay harder to explain, it’s likely not serving its purpose. If you can’t articulate it, they won’t understand it.

✅ 𝗔𝗹𝗶𝗴𝗻 𝘄/ 𝗺𝗮𝗿𝗸𝗲𝘁 𝘁𝗿𝗲𝗻𝗱𝘀 & 𝗲𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻𝘀 – If you find your organization's grade level approach creates pay gaps, sparks concerns, or drives dissatisfaction, it’s time to reassess.

Whether you stick with grades or move toward job-based pricing, what’s most important is that your approach works for both your business and your employees. At the end of the day, an effective and clear approach matters more than the structure itself.

𝘏𝘢𝘷𝘦 𝘺𝘰𝘶 𝘧𝘰𝘶𝘯𝘥 𝘨𝘳𝘢𝘥𝘦 𝘭𝘦𝘷𝘦𝘭𝘴 𝘵𝘰 𝘣𝘦 𝘢 𝘩𝘦𝘭𝘱 𝘰𝘳 𝘢 𝘩𝘦𝘢𝘥𝘢𝘤𝘩𝘦?