In a pay and grading structure, jobs are placed in order of hierarchy and arranged into a series of grades, with salaries attached to each grade. Having a clear grading structure helps to provide a logical basis for objective decisions about pay and progression.
Although some smaller employers may decide that it is not necessary to develop a formal grading structure, it is nonetheless useful for them to clarify the rationale on which decisions about the relative value of jobs and how they are rewarded are made. For employees, a grading structure can help to make it clear how their role and pay relates to others within the organisation and externally, and how they can progress to a higher level position at the organisation.
When devised in conjunction with a thorough job evaluation process, a pay and grading system can help to prevent equal pay issues. Some organisations have different grading structures in place for different types of job roles, but you need to keep a watchful eye over the risk of equal pay issues where this is the case.
A grading structure will need to be supported by accurate, up-to-date information on market pay rates. There are numerous ways in which you can gather this information, from looking at salary surveys to speaking to consultants. However, you should be clear about what information you require, who you want to compare against and the advantages and disadvantages of the different information sources.