What is a Salary Grade Structure?

Instead of creating a unique salary band for every single job title, modern HR departments use a Grade Structure. Jobs of similar value and complexity are grouped into the same "Grade" (e.g., Grade 5, Grade 6). For instance, an Accountant II, an HR Generalist, and a Marketing Coordinator might all be classified as Grade 6.

The Midpoint Differential (Progression)

When an employee is promoted from Grade 1 to Grade 2, HR needs to ensure the promotion carries a meaningful financial incentive. The Midpoint Differential calculates the percentage increase between the target midpoint of Grade 1 and the target midpoint of Grade 2.

• Clerical/Administrative Roles: Usually have a midpoint differential of 10% to 15% between grades.
• Professional/Managerial Roles: Usually have a midpoint differential of 15% to 20%.
• Executive Roles: Often see differentials of 25% or more, reflecting massive shifts in responsibility.

Why Do Salary Grades Overlap?

A well-designed compensation structure will always have overlap between consecutive grades. This means the Maximum of Grade 1 is actually higher than the Minimum of Grade 2.

Why is this important? It acknowledges experience. Imagine a "Senior Customer Support Agent" (Grade 1) who has been with the company for 8 years and is an absolute expert at their job. They should absolutely be paid more than a brand new, unproven "Support Manager" (Grade 2) who was hired yesterday.

How to Spot a Broken Pay Structure

If there is no overlap between grades (Grade 1 ends at $60k, and Grade 2 starts at $61k), it creates severe pay compression. New hires will come in making exactly the same as tenured employees who just got promoted. Conversely, if there is too much overlap (e.g., 70%), the grades are practically identical, rendering the promotion financially meaningless.