What Is a Salary Grading Scale?

A salary grade scale is a pay format where employees are placed within a pay level based on their education and work experience. Each job within the organization is placed at a specific pay grade so that both internal and external equity are balanced.

Designing a pay plan or pay schedule for a large company with many employees across varying fields and levels of expertise can be challenging. There are several compensation structures that can make this task easier for an HR professional.

If you want to know which salary grading scale is best for your organization, you must first understand the difference between pay grades, salary ranges, and pay bands.

Salary Ranges

Salary range (also known as pay scale) is a basic pay structure used to determine pay wage within an organization. It is a general range of salaries that sets salary expectations within a specific field.

The median salary is the midpoint of that pay range. Employers can use these numbers to assure that each employee is being paid appropriately compared to their peers – both internally within their company, and externally compared to other similar workers.

Salary Grade Example of Salary Ranges:

Within their CompAnalyst software, Salary.com provides a pay range for most professions with salary wage information ranging from the 5th to the 75th percentile in a given profession, as well as providing the average salary. This scale represents what each percent of those working within a field earned for salary within the year.

Pay Grades

Pay grades are usually expressed in terms of a range of salaries, from the lowest pay wage level to the highest pay wage level, based on credentials and experience. There is typically a formal process to determine where each job fits within each grade of the pay scale. This process is often based on a point system as a fair way to evaluate jobs.

Pay grades are often used by government agencies and companies to determine the amount to pay employees within a specific field. Each pay grade is typically created based on experience and education.

Salary Grade Example of Pay Grades:

In the public sector, the Step 1 GS-4 pay grade generally is an entry-level position that starts with an hourly base pay of $11.98 per hour. In comparison, the Step 1 GS-12 pay grade is generally held by white-collar employees in mid-level positions beginning with an hourly base pay of $30.47 per hour.

GS-12 is the 12th paygrade in the General Schedule (GS) payscale, and also the highest grade one can achieve before the position becomes "Career Competitive," meaning the position must be listed on USAJobs.gov and available to qualified U.S. citizens to apply.

Pay Bands

Pay bands are similar to pay grades, but they represent a broader way to determine pay grades. And when these salary bands become extremely wide, it is referred to as broadbanding.

Although a pay grade may be narrowly defined by a point system, a pay band may encompass just one, or multiple pay grades.

Salary Grade Example of Pay Bands:

One pay band may include grades one, two, three, and four of a pay grade, while another pay band may include grades five and six.