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Job Levels 101 (Founders Series: Part 2)

Jen Dewar
May 15, 2019, 6:05:00 AM

Founders: we know you’re busy. But we also know you care about corporate governance and want to stay aligned with things that impact your business’ success. We created this series to help you understand compensation fundamentals, and why they’re important.

Job levels and pay bands are the building blocks of a strong compensation strategy. Together, they can help ensure pay equity, improve recruiting and retention efforts, and help you build a more transparent company culture. They should both be considered early in an organization’s life cycle, but pay bands will inevitably change with the market over time, while job levels are ideally built to scale so they remain fairly consistent over time.

It’s important to work with your HR team and managers to establish your job levels from the very beginning to prevent equal pay and career growth problems before they start. Here’s what you need to know:

What are job levels?

Job levels, also known as job grades and classifications, set the responsibility level and expectations of roles at your organization. They may be further defined by impact, seniority, knowledge, skills, or job title, and are often associated with a pay band. The way you structure your job levels should be dictated by the needs of your unique organization and teams.

The simplest way to structure job levels is to bucket roles into three categories: entry-level, mid-level, and senior-level. This model doesn’t allow for much progression between levels, and people may stall in the mid-level—causing them to leave.

Some organizations expand this out by structuring job levels by title and experience:

  • 1: Entry-level individual contributor; requires less than three years of relevant experience
  • 2: Experienced individual contributors; requires three to five years of relevant experience
  • 3: Senior individual contributors and managers; requires five to seven years of relevant experience
  • 4: Directors; requires eight to ten years of relevant experience
  • 5: Vice Presidents and General Managers; require more than 10 years of relevant experience

This may work well if employees in your organization tend to follow a linear career path to climb the corporate ladder. However, it isn’t the ideal structure for teams with highly skilled individual contributors who have no desire to move into management roles, such as some technical talent.

For this reason, some organizations focus more on impact. For example, technical roles may fall into the following job levels:

  • T1: Entry-level; learning technical and professional skills
  • T2: Early career, with basic skills developed; work contributes to the success of the team goals
  • T3: Seasoned professional, with a variety of technical skills developed; strong problem solver; key for success of the team goals
  • T4: Advanced; very senior; can solve most problems or issues that arise; uses experience to forward company goals
  • T5: Exceptional; considered an expert within the company (and sometimes externally as well); drives timeline, features, and development through broad influence
  • T6: Luminary; central to the company’s success; translates organizational strategic goals into team plans; provides fundamental contributions to long-term company planning in their area of expertise

In this model, a senior, staff, or principal engineer may be classified as T4, T5, or T6, depending on their level of impact to the organization, and could very well be in a job level above their manager.

Why job levels matter

Job levels help you make more strategic and consistent decisions around how you hire, engage, promote, retain, and sometimes even dismiss talent:

  • Align on role responsibility and impact: Never begin your recruitment process without a clear understanding of the role’s ideal job level and corresponding expectations, qualifications, and impact. You can’t find and evaluate the ideal candidate if you haven’t defined who they are. Job levels also help you identify talent gaps in your teams, so you have the right mix of people to help you reach your organizational goals.
  • Close top-choice candidates: According to the Work Institute, career development is the number one reason for turnover. Job levels show candidates that you’ve seriously considered career paths they may have at your organization. They also help you clearly communicate what it will take for them to get to the next level, both in terms of challenge and compensation.
  • Develop stronger salary bands: You can better determine salary bands for each job level when you’re clear on the level’s corresponding expectations and impact. Salary bands enable you to make consistent compensation decisions that attract and retain talent.
  • Improve pay equity: Well-defined job levels help you place people at the right level, with the right salary band, to improve pay equity. They also work to define when an employee is ready to move to the next level, so promotion and compensation increase decisions are more consistent and fair.
  • Engage and retain your talent: Career pathing helps employees envision a future at your organization, and career mobility is a great way to show your employees that you appreciate them and their contributions. Both are great for engaging and retaining your workforce, as employees won’t need to look elsewhere to grow professionally.
  • Hold yourself accountable: Job levels defined with role responsibility and impact help you make important decisions around promotions and involuntary separations. They help you commit to rewarding employees who are under-leveled, and letting go of employees who are underperforming where they’re slotted.

What to look for when planning, reviewing, and approving job levels

Developing job levels generally falls to the human resources team, often alongside company but founders are often involved on some level throughout the process. Here’s what you should look for when planning, reviewing, and approving your organization’s job levels:

  • Job descriptions: Differentiate the roles that fall under each job level by thinking through the responsibilities, expectations, and impact of each. If a given role can fall under different levels, explicitly state what is expected under each level to differentiate them. Documenting job descriptions will provide transparency to how job levels came about, and clearly demonstrate what it will take to move to the next level.
  • A focus on impact: It’s not uncommon for a less experienced employee to make a bigger impact than a more seasoned employee. Make sure you hold on to them by awarding a job level, and corresponding salary band, that accurately reflects their impact rather than their years of experience. Similarly, a productive engineer shouldn’t get stuck in a low job level because they have no desire to be promoted. Make room for these individual contributors in a top job level so they can be recognized for their contributions and continue to see compensation growth
  • Room to grow: Early stage organizations may not need many job levels now, as they may only have a single person in marketing, a few people in sales, and fewer levels of management. But as the company grows, more job levels can help differentiate between levels of responsibility and impact. Planning for those now can help you make better decisions when the time comes to scale across all departments.
  • A communication plan: The best time to build job levels was before you started hiring. The next best time is now. If you’ve already begun building out your team, you will need a plan for how to address any changes that need to be made, and a plan to communicate that with your team. You may find that some employees are in a lower job level than originally thought and that you’re overpaying them. Perhaps you let them know that they’re not eligible for a pay increase unless they move to the next level, and tell them what it will take to get there. Or, you may find that some employees need to be moved up to the next job level and salary band, to reflect their level of contribution. Create a plan for how and when that might take place.

Final thoughts

In an organization’s early days, it’s very common to arbitrarily assign job levels and pay grades—but doing so may cause problems in the future. Over-inflating titles may leave little room for future hiring plans, and lead to inflated compensation. And, without a firm compensation strategy in place, decisions are made ad hoc—potentially leading to pay inequities as you continue to hire. Being intentional about job levels, and corresponding salary bands, from the start can prevent these issues, while also making it easier to attract, engage, and retain talent.

Read more in the founders series:

Pay Bands 101 (Founders Series: Part 1)

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