Pay Grade The use of pay grades is a common strategic approach to the problem of framing employee compensation packages. The basic premise of the pay grade is that employees function best when their job roles and responsibilities are matched to a clearly structured wage scale. Among the advantages noted in the text by Healthfield (2010), the ability to compensate employees of similar job descriptions with similar salaries is most substantial. Also important is that this provides employees a clear sense of the monetary opportunities contained in each role and department within an organization.

This, however, does not resolve the challenges that come with using the pay grade approach. First and foremost among the obstacles to achieving competitive advantage is the broad spectrum that is usually encompassed by the pay grade. According to Heathfield, "pay steps within each pay grade differ between organizations and may involve as many as 10-15 or more pay steps before an employee reaches...

A pay raise, once an employee reaches the top of their pay grade is dependent on cost of living allowances or increases. " (Heathfield, p. 1)
But in many ways that cannot be measured, employees will tend to view pay grades as deeply hierarchical in nature. One defining characteristic of the pay grade structure today is the expansive gap that stands between employees at the lower and middle reaches of an organization and those in executive positions. This pay gap may cause resentment among employees who perceive limitations in their ability to advance to new pay grades within the organization. In a company where there is not a clear path for advancement to new pay grades, the ceilings imposed by certain pay ranges may have a demotivational impact on employees. This loss of morale and motivation will translate to the kind of performance that damages a company's competitive advantage. Ultimately, it is my view that pay grades are damaging…