Pay Grades: What Is It And How Does It Work?

By Sky Ariella - Oct. 27, 2020
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Being fairly compensated for their work is pertinent to any employee. You bring passion and diligence to your position and in return, you rely on being paid accordingly.

Pay grades are commonly used to establish a satisfactory market starting salary for particular positions and fields based on various background factors of the employee.

What Is A Pay Grade?

A pay grade is an organized system of compensation tiers that decide what employees in each position of a company will be paid. It is a range that includes a low-end number to the highest salary for a particular role within the company. It provides a structure for what an employee can expect as they progress through the company.

The salary an employee will receive initially can be affected by a number of factors.

Some of these factors include:

  • Specific responsibilities for the position

  • Level of seniority

  • Overall job difficulty

  • Prior work experience

  • Education

  • Performance

  • Length of time in the field

How Does A Pay Grade Work?

A company’s pay grade functions based on two factors. Firstly, the responsibilities that the position entails and the job title of the employee.

Some examples of job titles include:

The job title is basically that snapshot of what it is exactly you do. Each of these job titles, and any other job title that applies to you, have an average expected pay grade. You can find out what it is by doing a little internet research.

In addition to job title and responsibilities, a pay grade is also based on what level you’re at in your career path. Whatever field you’re in, there’s probably a natural progression towards more responsibility and usually management roles. An entry-level marketer isn’t going to receive the same pay grade as a chief marketing officer.

Think about pay grades like a map between these two aspects of a particular employee. Let’s embellish on that marketing example.

On a marketing team, there could be a senior marketer, an associate marketer, and an entry-level marketer. Each of these employees would receive a different pay grade range.

  • The pay grade range for the Sr. level marketer would probably fall around $61,000-$120,000.

  • On the other hand, the entry-level marketer would experience a range closer to $30,000-$75,000.

  • The associate marketer would fall somewhere between the two.

Notice that there is some overlap between the two positions, however, their high points and low points differ based on seniority.

Pay Grades in Public Sector Workplaces

Working in the public sector or a union job means that pay grades will often be utilized to give you comprehensive guidelines to factors affecting your salary and upward mobility within the organization. Usually, in these positions, employees will be rewarded for sticking with the company for multiple years and handling supervisory tasks.

Examples of Public Sector Workplaces Include:

More Pay Steps that Encourage Motivation

One of the most useful aspects of implementing a pay grade is that it provides the employees with a clear framework for the steps their career growth will take. It’s helpful for employees, especially in a lower-paying entry-level position, to know exactly when their performance will be evaluated and what they should expect in their time working for the company.

Moving through a pay grade allows an employee’s performance to be continually taken into consideration. It shows that there’s the ability to progress into promotions or roles with more responsibility.

Beware of offering too few pay steps in your system. A team that feels stagnate can often turn demotivated and hurt productivity. Increased pay steps act as an incentive for meeting those higher-level expectations. Outlining more pay steps has the potential to improve employee motivation and morale.

Overlapping Salaires are Common

It’s customary for the steps involved in an organization’s pay grade to have some degree of overlap between positions. This would mean something like an entry-level marketer’s pay grade being $40,000-$70,000 and a higher level associate receiving a pay grade of $60,000-$80,000. They both start and end at a different point, however, between the two there are commonalities.

Pay grades are used to ensure fairness for employees when it comes to compensation and room for growth. It’s a system that rewards team members for meeting goals and producing exceptional work. This can be attractive to new applicants, as well as keep talented current employees happy and motivated.

How Much are Raises in America?

The standard raise rate can differ drastically based on field and employer discretion. Some jobs have a tendency to give higher salary increases or better bonuses more often than others.

Raises can be as small as 1% or as much as a 30% increase depending on management responsibilities and the job title. If you’ve been offered a raise that you think is lower than what you deserve, the possibility is always open to negotiate with your supervisor.

Tips For Negotiating Salary or Pay Grade

Negotiation procedures are a standard process in the workforce. It can seem frightening to a first time negotiator to request a higher salary, better raise, or more benefits. However, it’s a very valuable tool that you can improve on. With a little research into strong negotiation techniques and evaluating your objective accomplishments, you may be able to negotiate your way into your target pay grade.

  1. Do Research on the Market Average. Doing the proper research in the market average salary for your position is crucial to your negotiation’s success. This can create a good foundation for your stance as to why you deserve a higher pay grade.

    Some Factors to Consider Researching Might Include:

    • What are direct competitors paying on average?

    • What is the national average for your job title?

    • What is the average salary in your city or State?

    • What is the average salary for an employee in your position with your level of experience?

    • What are the recruiters in your location and industry offering?

  2. Be Organized. There’s nothing that will deter a potential or current employer faster than a disorganized approach. You’re bringing a request to there attention, and that means it should be professionally prepared. Take time to organize your needs, thoughts, and research conclusions into a rational argument for your value.

  3. Be Flexible to Alternative Options. Your current employer may have their hands tied budget-wise when it comes to offering a higher pay grade. This doesn’t completely degrade negotiations, and they could have other offers that are equally as valuable. Be flexible in your discussion and open to hearing their alternatives to a higher salary.

    Examples of Possible Benefit Alternatives an Employer can Provide Include:

    • One work at home week per month

    • An extra three personal days per year

    • Stock options

    • More paid sick days

    • Dental benefits

    • Tuition reimbursement

    • Commuting costs

  4. Be Confident, but Not Conceited. The fine line between going into a salary negotiation confident without being conceited can make the difference between attaining your request or not. You should have enough confidence to accurately articulate your strengths and accomplishments in your time working. However, try to keep this confidence in your value from coming across as too self-indulgent.

    Employers respond well to level-headed professionalism and mentioning definitive achievements.

  5. Express Your Gratitude. Whether you’re negotiating a starting salary with a potential employer, or the details of a promotion with a current company, being gracious for their offer is key. Even if the pay grade didn’t live up to your original expectation, they’re still extending an offer.

    When you’re dealing with negotiating the terms of a raise with your current employer, be sure to thank them for all the experience you’ve gained while working for the organization. Experience can be just as valuable as dollar signs, and you should be appreciative of this when asking for more.

  6. Set An Exact Target Pay Grade. You should try to be as specific as possible when negotiating your salary. You should go into it with a target number in mind that you’d like to hit.

    When deciding on a pay grade range to counter offer an employer, make sure that the lower half of your request is still a salary number that you would accept.

    Most companies are in the business of adhering to a budget, and if you give them a smaller number than you actually want, it could lead to accepting an offer for less than you need.

  7. Don’t Be Scared to Leave or Decline an Offer. Something to consider before embarking on salary negotiations is that there’s always the possibility that it can result in you moving on to other options. Whether that means leaving your current company or declining a job offer because it’s not meeting your minimum salary requirements.

    Don’t be too scared to walk away from an offer, even if it means going back to job searching. Finding the right position is a process. Letting the fear of not finding anything else affect your decisions can paralyze you into settling for an offer that won’t meet your needs or is less than you deserve.

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Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.

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Topics: Definition, Glossary