A compensation team's day job often comes down to answering the same question in different wrappers: how much should this role pay, how much should this raise be, how much should this promotion cost. A well-designed job grade structure answers most of those questions before they reach the team. Each grade has a defined pay range. Each role has a defined grade. Raises and promotions move within and between grades based on clear rules. When this system is documented and followed, pay decisions become faster and more defensible. When it's not, every decision turns into a negotiation.
How Grade Structures Are Built The foundation is job evaluation, which determines relative worth. From there, grades get defined: roles with similar point values or equivalent responsibility levels group into the same grade. Typical structures have 10 to 20 grades, spanning entry-level individual contributor through senior executive.
Each grade has a pay range with a minimum, midpoint, and maximum. The midpoint is typically set to market for the grade. The minimum is 80 to 85 percent of midpoint (where new hires typically enter). The maximum is 115 to 120 percent of midpoint (where highly tenured employees max out before needing promotion).
Job Grades Versus Broadbanding Traditional narrow grades have tight pay ranges (maybe 30 to 40 percent from minimum to maximum) and many levels. Broadbanding uses wider pay ranges (often 80 to 100 percent from minimum to maximum) and fewer levels. Narrow grades support structured career progression and clear pay decisions. Broadbands support flexibility and manager discretion.
Most modern structures land somewhere between the two extremes. Technology companies often use broader bands for senior engineering and specialist roles, and narrower grades for operational and entry-level roles.
Should Every Role Have a Grade? Ideally yes, even executive and specialist roles. Leaving any role ungraded creates inconsistency and exposes the company to pay equity claims. The only common exception is CEO and C-suite roles, where compensation is often structured individually through employment contracts rather than grade-based pay ranges.
What Changes When Someone Moves Between Grades A grade change is the formal mechanism for career progression. Moving up a grade typically triggers a salary increase to at least the minimum of the new range, access to additional benefits or perks tied to grade (stock refreshers, sabbatical eligibility), updated performance expectations, and sometimes a title change.
Moving down a grade (rare but not unheard of) typically happens after a role change, organizational restructuring, or performance-driven demotion. Pay often stays at the current level (a "red circle" rate) until the new grade's range catches up.
Designing a Job Grade Structure That Supports Fair Pay and Clear Career Paths Start with a thorough job evaluation so grades reflect actual relative worth, not accumulated history. Benchmark pay ranges against your target market (typically 50th percentile for mid-market companies, 75th for talent-premium companies) using salary survey data refreshed annually.
Connect grades to compensation , pay grade , pay range , and job classification structures so the whole pay system is internally consistent. Publish the grade structure and criteria internally so employees understand their place and path. Reference the BLS National Compensation Survey at bls.gov/ncs for structural norms across industries. Audit grade assignments annually for pay equity; when equivalent work sits in different grades across demographic groups, that's the problem worth fixing before it becomes a legal one.
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