The federal government along with a growing number of public and private organizations are using salary grade or pay grade schedules to manage compensation programs. Grade pay refers to a predetermined schedule by which all jobs are ranked and employees are paid based on how they fit into the schedule according to job ranking, work experience and educational background.
One of the main reasons the use of pay schedules has increased is to ensure equal pay for equal work for employees performing similar jobs. A salary schedule that schedules employees' pay based on their position, experience and education helps prevent any favoritism toward employees because of a certain ethnicity, race or gender, among other distinguishing traits. In more market-based pay systems where employees are paid based on supply and demand, pay discrimination is more of a concern.
Human resources professionals realize that by using a pay grade schedule they are protecting themselves more effectively against allegations of discrimination. As long as the company sticks to an accurate and consistent application of grade pay, it is difficult for employees to charge discrimination. In essence, grade pay focuses on the technical qualities of the employee and reduces the potential for discrimination.
Federal employee pay schedules and many types of company grade pay plans do allow for some types of merit-based pay increases. The government's general schedule, for instance, has 15 pay grades and 10 steps within each grade. The USDA Forest Service website notes that as a federal employer, it does allow employees to earn performance-based pay increases through progression on its 10-step quality system.
Though the benefits of anti-discrimination and and fair pay often are the focus in grade pay discussion, many managers also appreciate the simplicity it offers in employee pay decisions. Letting job candidates know from the beginning that pay is based on placement on a salary schedule eliminates much of the tension in the hiring process. Managers do not have to worry about negotiating pay and researching what to offer for each position that comes open.