How to Build a Grade Structure from Scratch

The Core Design Challenge

The starting point is always evaluation data, not salary data. The scatter plot method — plotting evaluated job scores on the x-axis and market salary data for benchmarked roles on the y-axis — produces two things: a picture of how the organisation's current salaries relate to the evaluation scores, and a market reference line (policy line) that shows where the organisation's ranges should sit relative to the external market. These two data sets together define both what the organisation currently does and what it intends to do.

The number of grades is a design decision with real trade-offs that are often underestimated. More grades (10-15) create clearer distinctions between adjacent roles and provide a more granular career ladder — but they also require more frequent re-grading as roles evolve, and create more opportunities for grade inflation as managers argue that their direct reports have 'grown into' a higher grade. Fewer, wider grades (5-7, sometimes called broad bands) accommodate more variation within each grade and require fewer re-grading decisions, but make it harder to signal meaningful progression between roles that genuinely differ in complexity. For most organisations with 100-1,000 employees, 6-9 grades is the workable range — enough granularity to be meaningful, few enough to be governable.

The band spread — the distance from minimum to maximum within each grade, expressed as a percentage of the midpoint — determines how much salary variation is acceptable for roles at the same grade. A 50% spread (midpoint ±25%) is the most common design choice: it accommodates the range of tenure, performance, and specific role variation that exists within a grade without creating such wide bands that the grade concept loses meaning. Narrower spreads (30-40%) are tighter and more equitable but require more frequent grade changes to reward progression. Wider spreads (60-80%) accommodate more individual variation but produce larger within-grade gaps that create internal equity pressure.

How the Approach Works

Grade overlap — where the maximum of one grade exceeds the minimum of the next — is intentional and structurally important. Without overlap, a high-performing, long-tenured employee in Grade 3 who reaches the maximum of their range must be promoted to Grade 4 to receive any further salary increase, even if their role has not changed. With overlap, their salary can move above the Grade 3 midpoint while remaining within a defensible range — without the complexity of a grade change that their actual role scope does not justify.

The most common error in grade structure design is building the ranges around current salaries rather than market data. Current salaries reflect historical decisions — above-market hiring, below-market budget constraints, legacy pay decisions for legacy employees — and building ranges to accommodate them produces a structure that enshrines existing inequities rather than correcting them. The ranges should be built from the market data and the evaluation framework; the current salary population should then be placed within those ranges, with above-maximum employees red-circled and below-minimum employees immediately brought up. This sequence — structure first, population placement second — is what produces a structure that is genuinely equity-improving rather than simply reorganising existing inequities into boxes.