Do modern employers need employee grades and pay structures?

In an agile, skills-based, entrepreneurial, organisation, why would we still need structures like career grades and pay ranges? Won’t they stifle freedom to act, movement of people, and creativity?

It’s true that organisations are changing. Automation is increasing, and agile structures are more commonplace. Despite this, the answer to the headline question is ’yes’. Effective grade structures still help retain and engage employees in all types of organisation, although they might need to be adapted to reflect a changing workforce.

Traditional Architecture consists of Job Banding and Job Architecture – this still has great value to most organisations. Modern Architecture includes Skills Architecture which enables the effective implementation of a more agile workforce

The benefits of robust people structures are huge.

They underpin most HR process: e.g. pay (and fair pay), performance management, L&D, career progression, succession planning, and workforce analytics.

I’ve developed levelling structures, job architecture, and, in more recent times, skills architecture for almost every type of organisation – from those with less than 200 to over 250,000 people, and with highly flexible agile populations or more traditional waterfall structures. While the way we implement might vary –  e.g. in an agile structure the role of the individual contributor and a greater focus on skills is more important – the structures still create huge value.

I see evolution not revolution.

Interestingly, small but fast growing, entrepreneurial organisations are most likely to need some structure. While small, they don’t need it, most people know each other and the CEO knows what value they bring. However, as they grow, new divisions are created, new territories are opened – things become more complex.

This raises questions for the business:

• How much should I pay for role A compared to role B so I attract the right talent without salary inflation? Am I paying fairly between roles?
• Does my business’s structure deliver the best return on investment? Are there too many managers and not enough delivery capacity?

It also raises questions for employees: what do I need to do to progress, and what skills/capabilities do I need to develop?

These organisations often find people costs increasing as a percentage of revenue, increasing turnover of talent and a lot of noise from the workforce. Pay and career progression are two critical factors in retention.

At this point, leaders need structures to manage a larger, more complex workforce. People Architecture gives them this:

Organisations can group roles (and employees in those roles) by level (Job Banding) and by type (Job Architecture).

The organisation can then link HR process such as:

• Pay – creating pay structure means the organisation can manage pay by level to attract and retain employees and pay them fairly without costs spiralling;
• Performance management – clear expectations of performance can be set by Band, which helps managers set clear objectives. Leadership and clear goals are key factors in engaging employees; and
• Career Progression – Employees can see what it takes to move to the next Band and what capabilities or skills they need to move job families. This lets employees and managers see different career paths and think about how they might achieve them through L&D, projects, secondments etc.

Even truly agile organisations need some structure.

I recently designed pay structures for the agile part of a global organisation.

As part of this, a management consultant who specialised in implementing agile told me that traditional levelling structures don’t work with agile populations.

How would you determine how much to pay? He said – well, you’d need to think about what sort of skills, behaviours and competencies are really important and rank them.

Sounds a lot like levelling right?

But there’s some truth to what he said: in agile populations individual contributors and specific skills are more important than management.

It’s therefore important that modern architecture accounts for this and recognises individual performers.  Overemphasis on management won’t work. It’s key to an agile population to include a Skills Architecture in addition to the more traditional Banding and Job Architecture.

While movement towards digital’s been accelerated by COVID, for most organisations, agile is still most typically applied to the Technology function. But even then, it’s often not truly agile.

Traditional structures are here for some time, although they’re likely to diminish.

Finally, the main technology tool that organisations use to help organise employees and provide essential information is an HR Information System (HRIS) such as Workday or Success Factors.

To use these effectively, you need a good Architecture. Many organisations spend millions on implementing an HRIS, but almost no time or budget on the Architecture.

I’ve worked with several organisations to update the architecture who’ve implemented an HRIS but only use a fraction of its capability because of a poor architecture

If you’re implementing a new HRIS do spend time on the architecture before implementation.

So, in summary, if your organisation, like many, is re-inventing itself (accelerated by COVID) don’t throw out your grading structures and job architecture just yet.

They can still provide immense value, but do consider:

• When was the last time you reviewed your structure?
• Does it sufficiently recognise individual performers and not over-score management capability?
• Can it recognise skills development as a way of increasing job size?
• How effectively are HR processes tied to the structure?
• Does it unlock your HRIS tool’s capability?