1. Cluster Approach
The simplest approach is to make a scatter diagram of the organization's jobs, as is done in establishing the pay-policy line. When this is done it can often be observed that the jobs tend to cluster rather than scattering evenly. This effect can be taken advantage of by encasing the clusters horizontally and vertically, as illustrated in figure 1. This provides all three dimensions, but none of them is arrived at consistently, nor are they likely to be symmetrical. This may have a negative impact on salary and career progression within the organization.
Figure 1. Cluster Approach to Pay Grades
Clustering has the advantages of simplicity and flexibility: it can be changed each time the wage structure is adjusted. It tends to be used with ranking or slotting methods of job evaluation, so small organizations are most likely to use this approach. 2. Division Approach
Another relatively simple approach is to use the horizontal dimension of the wage structure, usually the job evaluation points, to determine the number of pay grades. This is done most easily by determining a set number of points for each pay grade and, starting with the least number of points, marking off the lines between adjacent grades. In figure 2, each pay grade is 40 points "wide."
Figure 2. Division Approach to Pay Grades
An alternative to using a set number of points for each grade is to use increasing numbers of points as we move up the scale. This would reflect the difficulty experienced in job evaluation of determining exact differentials between jobs higher in the hierarchy. In the division approach, the job rate for each grade should be set by placing the range midpoint at the point where a vertical line from the point value in the middle of the grade, say 200 points for level 3 in figure 2, meets the pay-policy line. This method can be used successfully with a point system of job evaluation and can also be adapted to...