What Is Grade Pay And How It Works?

what is grade pay and how it works

Grade Pay, we normally hear this term in the public sector. But the private sector has also started to adopt it.

But what actually grade pay is?

In the present day, grade pay is seen in both the public and private sectors. In the compensation system, grade pay is a step that defines the amount of pay an employer will receive. It is decided using the factors like responsibilities in the job description, tenure, and work experience of the employee.

Grade Pay is an important tool making it convenient for companies to plan out new companies whenever the budget allows. It also creates a transparent layer for employees who can have a clear expectation of salary while/ when joining the company.

What is Grade Pay?

The grade pay is a structured payment method in companies and sectors which use a grade pay system. The compensation given to employees is fixed and does not involve any kind of negotiations. It is a transparent method and does not involve hidden charges like the CTC structure. It is dependent on the employee’s education level and also the years of professional experience.

Types of Pay Grade

what is grade pay

Vertical Pay Grade

Vertical pay grade is a salary structure that is proportional to a person’s work experience. It increases with the skills and certifications of the employee. It also increases with the responsibilities and job title of the employee.

Horizontal Pay Grade

In horizontal pay grades, the earnings are decided based on the person’s experience and length of service. Now, it might sound similar to a vertical pay grade but there exists a distinguishing feature. The pay grade also depends on the quality of work the person provides. In these cases, the increase factor in salary is preset and follows the outlined path.

What is a Step in Salary Grade?

step salary in grade pay

Now, when we know that a salary grade depends on several factors, another concept of steps is introduced here/ Another concept of steps is introduced here when we know that a salary grade depends on several factors. Steps in salary grade are considered as conjunctions. A salary grade consists of several steps. The steps are defining elements of an employee’s experience and the compensation they’ll receive. The steps are representative of the job level, and how can a person grow up in the steps.

How Does the Grade Pay System Work?

The Grade Pay system is an important tool for companies and businesses to churn out new vacancies and also decide the salary payments for a specific job role. It is defined by the level of job profile, responsibilities, and also the years of experience.

It provides a chart of the employment system. The flowchart represents the salary compensation at different job levels. Unlike the CTC format, the grade pay system works on preset guidelines and follows a stepwise flow chart towards the increase in compensation.

Factors that affect Grade Pay System

1. Education

education and salary

Education is the primary factor that is considered during the selection process for the job role. Education complies with the degrees, training, and special certifications. Based on education, one can get a higher job profile due to their wider knowledge of the subject.

2. Experience

Experience plays a very important role in the grade pay system. It is the number of years a person has devoted to a similar job role. With more experience, the steps in the grade pay system go higher.

3. Field

business field with huge  grade pay salary

A Field in the grade pay system represents the job responsibilities. With more responsibilities comes higher compensation. Companies decide on the compensation system depending on the responsibilities of the job profile.


  1. Skills Required To Get Into The FMCG Industry
  2. Make A Successful Career In The Banking Sector

4. Achievements

Achievements show the expertise of a person in their job. Hence, it greatly affects the grade pay system. The higher the achievements of the person contribute to higher pay. The/ A person’s achievements in the field of job/work contribute to stepping up in the chart of the pay grade system.

Benefits of Pay Grade

1. Transparency

Grade pay systems offer transparency in the salary structure of the employees. It give/ gives the employee a clear view to the employee for the further path of their career. Transparency in the Grade pay system provides a trustful public image to the business or the company.

2. Rewards

rewards benefits in grade pay

In private sectors pay grade gives an outlook towards the rewards and recognition to the employees/ In the private sector, pay grade indicates an employee’s attitude toward rewards and recognition. It contributes to employee motivation and pushes them to perform better.

3. Close Wage Gaps

The pay grade system eliminates salary gaps and provides a democratic way of salary negotiations. It eliminates disparity among wage groups and ensures similar factors for deciding the grade pay. It eliminates wage disparities and ensures that similar factors are used to determine grade pay.

How do I calculate my grade pay?

The calculation of grade pay has changed slightly after the 7th Grade Pay Commission. Basic pay is your fixed compensation promised during the employment process. Grade pay is the gross salary after adding specific allowances like food, travel, and stay// lodging. To obtain your grade pay, multiplies/ multiply the basic pay by a factor of 2.57. The resultant figure is added to the allowance spent.


Usually seen in public sectors, the grade pay system is/ has been introduced in the private sector. It is a handy tool for businesses to decide upon the / the amount of deserving compensation, to the employees. Unlike the CTC system, the Grade pay system is a fixed and preset amount that the employee will receive. It depends on several factors like education to experience and job responsibilities. Different organizations use different systems of grade pay for their employees. To get a clear insight on / understanding of your grade pay, have a clear conversation with your employer during the employment process.


Share on facebook
Share on twitter
Share on pinterest
Share on linkedin

Leave a Comment

Your email address will not be published. Required fields are marked *

On Key

Related Posts