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Top 7 Risks When Building a Grade Structure

30 November, 2015

Good judgment comes from experience. Experience comes from bad judgment. –unknown

Are you building or implementing a new grading structure at your company? You have an opportunity to improve fairness, consistency and “internal equity” as we rewards people say. A well-designed and managed level structure helps ensure “world peace” in our organisations. You have an opportunity to bring tremendous value to your organization and to your career as well.

You also have the opportunity—if you are not careful—to muck things up even worse than they are now, validate/legitimise what is unfair, introduce more inequities,… and derail your success in your current job or company. (Relax, you can always get another job and use your newfound good judgment…) Remember, you are dealing with perceptions of whose job is bigger and what is “fair.” You’re messing with people’s incomes. What you are doing affects real people’s lives, and that is what makes this kind of project very important—not the fact that it is one of your KPIs.

Level structures generally include grades (“pay grades”) and a listing of what job titles are in each grade. These systems determine allowable job titles, compensation and benefits entitlements and salary ranges. I’ve created many such systems since 1987, for employers of all sizes, as small as 25 employees to more than 25 thousand. I built some structures while in corporate roles and others as a consultant. Somewhere along the way, I also built a reputation for doing it “right” after someone else had failed. (Hint: the method that works well is the right method, and it varies company to company.) Essentially, building a structure involves defining a career ladder and then placing all the jobs (1 or more people perform a “job” having a job description) into the career ladder. The relative “value” of jobs should be fair and equitable within and between the various job functions.

So if one of your KPI’s is to introduce, consolidate, replace, fix, design, modify, compress, align or export a pay structure, read on and learn from my experiences (good and bad). Here are my personal picks for the seven most dangerous risks and how to avoid them. If can’t avoid them, at least understand them and manage them the best you can to mitigate failure, achieve intended outcomes and perhaps save your job.

Top 7 Risks when Building a Grade Structure

  1. Real commitment is lacking at the top. If the CEO AND at least a majority of his/her direct reports support the initiative, there is a chance of success. If not, wait until such support exists. Change management 101: you need a burning platform for change, meaning something important to the business is broken and the senior team agrees it must be fixed. I was Compensation Director for a manufacturing company and it was clear the grading criteria in the company had a lot to do with “managing up” and getting managerial attention, as opposed to the actual job accountability. It seemed top management enjoyed ambiguity about grading policy, and it became clear to me “correct” job evaluation was sometimes a hopeless battle. Got top level support? Proceed to #2.
  2. You are simply translating from current levels/grades to a new system. It takes time to develop compensable factors and define degrees for each. It takes time to evaluate each job against those factors. It takes time to confirm that people are actually doing the jobs you think they are doing when you look at their job title. So you just blur your eyes a bit and assume your current job titles and levels indicate the nature and level of work performed by your workforce and devise a translation table. A translation table says “anyone in level 31-34 under the current structure will now be considered grade 14”. Or anyone who is a VP today will remain a VP. If your current system is correct, why are you changing it? Using straight translation is a shortcut and a poor excuse for developing a pay structure properly. I worked on a structure where the number of grades was similar between old and new structures, so naturally it was highly tempting to simply translate from old to new, using “if x, then y” logic. Historical inequities were therefore carried over into the new structure and the organisation missed its opportunity to fix them.
  3. Poorly defined evaluation criteria—It’s good to keep things simple, yes. But when defending your evaluation of jobs into grades, both employees and managers want to know why one job is graded higher and another lower. If all you can say is “band F is for jobs that manage” and you fail to define “manage”, your system is doomed. Someone will say they manage vendors (they order toner) or they manage people (they manage project members who don’t report to them), or they fully supervise others (one person). Evaluation criteria need to be clearly defined. Level cutters are needed: distinguishing factors between one grade and the next. Believe it or not, there is a whole science behind this called industrial psychology. Google it. I was with Hewitt and we were hired by a major university to recreate their entire compensation and classification system from a “blank sheet of paper” (another large firm with a proprietary position evaluation system had apparently failed despite a $1 million price tag.) The problem was in the factors used. The factors have to be right, and you cannot always slam in a one-size-fits-all system. The client assigned me a management professor to “assist” and we even ruled out the Hay system which is in my opinion the gold standard of job evaluation systems. So we devised a new point-factor job evaluation system from scratch. The factors were selected by considering the types of jobs at a university and the kind of level cutters that were relevant (yes, educational qualification was a key factor!) The project lasted 3 years. Every employee filled out a job questionnaire. We reduced the number of secretary job classifications from 120 to 16. Several years later, the system is still “working like a charm” I am told.
  4. Do it in isolation—you have a KPI that says the job evaluation system needs to be done by 31st December. That means there’s no time to actually meet with managers, have them explain their org charts, who does what, look through job descriptions, visit their area, walk around and observe. Job analysis requires “going there” and seeing, hearing, listening, reading, asking, understanding. If you are restricted from travel, conduct phone calls or skype calls. If you cannot explain to another person what everyone in a function does (for example, in finance, or marketing communications or EHS), then you have no business doing job evaluation. It cannot be done sitting at your desk. Last year, I helped a large company with conversion to a new job evaluation system and we are getting good “traction” with managers (and therefore employees) because the company invested in the necessary engagement with line managers, Numerous manager interviews have been held. I have conducted conference calls as well as live job evaluation sessions, directly engaging managers in the leveling of jobs. This is not an HR thing… it affects everyone. Managers really want to help. Exclude them and your new system will fail. Trust me, I’ve seen it.
  5. Exceptions and excessive grandfathering—once again, job evaluation is not about finishing a KPI; it is determining allocation of resources, i.e. who gets what. You are determining each person’s title, salary range, bonus target, leave entitlement, and other rewards. If you embark on such a project with the intention of “smooth implementation” you have missed the point. The overarching purpose is to establish a hierarchy within the organisation that is aligned internally (bigger jobs end up in higher grades) and externally (the total rewards package for each job is market competitive.) If your organisation lacks the courage or intent to improve this alignment by “protecting” today’s poor alignment, again, what’s the point of all the work? Fix these cases. Let your records show that the “VP of Marketing for Business Unit A” should really be a Senior Director, not a VP. Next time the position is vacant, hire the person as a Sr. Director. As for your current VP, tell him or her the job should really be a Sr. Director and that their bonus target will be adjusted accordingly and their salary will be reviewed in relation to the Senior Director salary range. Contract renewals, job changes or promotions should be used as opportunities to fix inequities. If there are no legal barriers, just “bite the bullet” and make all corrections at once. I once received a standing ovation at a client’s quarterly leadership meeting when it was announced that 300 people would lose their officer tiles (in the U.S. an officer is a vice president or above.) Really, I am not joking, they stood up and applauded. What WAS a joke was their old title system: there were VPs reporting to assistant VPs or to non-VPs! At this huge credit card company, titles were being awarded for performance or loyalty, or other reasons. So we created a new robust system for titles (a custom built point factor job evaluation system with a job evaluation committee to own it and maintain it), and it was applied to 300 people in a single day. Titles finally had real meaning. No one was spared. Huge success.
  6. Local empowerment/ownership—The worst thing ever to happen to internal equity was the creation of the HR Business Partner role which introduced the notion of customer satisfaction in relation to compensation decisions. Has this happened in your organisation: HRBP comes to you (C&B) with a new job description already showing the title and grade and says “we think it’s a director, grade 12, and we need to make the offer to our candidate this week.” Immediately you recognise that there are similar jobs in grades 10 or 11, and there is no way this should be a 12. Yet, you are now expected to be more customer-oriented so you go ahead and make the job a 12. Unless you have a firm COE (Centre of excellence) model set up for compensation where all the C&B people report on a solid line to the global head of C&B, you can forget about having an equitable pay structure. It just won’t happen. That said, Compensation COE’s need to be trained as consultants to the business, to help customer-focused HRBPs with real talent challenges. Generally, good C&B practices are aimed at helping the business attract and retain talent. The initial salary offer is about attracting, but from that point onward it is all about retention. In the case above, it’s likely the HRBP is trying to help the business retain someone of very high value. So why not advise the HRBP to enhance the job responsibilities to justify a grade 12 and to justify a different title that is not similar to those in grades 10 or 11? Learn to advise the business on ways to meet its talent needs that maintain the integrity of the job hierarchy.
  7. Lack of Credibility—can’t get budget support for using a consultant? Companies use consultants for three reasons, usually: 1) lack of in-house expertise, 2) lack of resources/time, or 3) lack of credibility. Sure, you are a capable HR/C&B expert and you are certified and know how to build a pay structure and evaluate jobs (you convinced your employer of this before they hired you.) But consider reasons #2 and #3, resources and credibility. If you truly have the time and the internal stature to create and then “sell” your new structure internally, congratulations. But if you lack the time or if managers in your company don’t hold HR in the highest regard, then consider using a consultant. Corporate HR is presumed by managers to have few good ideas until we prove them wrong. Consultants are presumed to have lots of good ideas, until we prove them wrong. I once helped a large mobile telecom company in the U.S. put in a new system. Their internal expertise was very strong. But they used me to help ensure it got done and to add credibility.

Bottom line

People working within organisations want to know what it takes to be promoted to the next pay grade. A well-designed grade structure and evaluation system will provide a clear, consistent answer to that question. Taking shortcuts, proceeding without support, pleasing managers or racing to get it done to fulfil a KPI… these are likely to result in a failed job grading structure, in my experience. Do it right, and bring a little world peace to your organisation. It won’t hurt your career either.

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5 Comments
  1. Sheila Sever permalink

    Great article, Tom! I think WorldatWork would publish it in workspan. Just a thought. Hope you and the family had a great Thanksgiving (in the US or elsewhere)!

    Blessings,
    Sheila

  2. Jaslyn permalink

    Excellent article which succinctly summaries the 7 pitfalls of building a job structure. Tom is extremely knowledgeable in this specialised field of knowledge. Hope that we can get to work together one of these days.

  3. Really good article ! This very useful for knowledge .. Succes Thom!

  4. Mariana permalink

    Great Article..

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