Pay Level - Definition, Types & Example

What is Pay Level?

Pay Level is fundamental unit in compensation structure of an organization, which is used to denote difference in compensation due to smallest possible change in job specification. Pay level generally rises along with the rise in hierarchy of an organization.

The pay is determined by the level of job, accountability, responsibility, position, experience etc. in the company.

Pay Level Types

Basic approach to design pay structure by using pay level

1. Close Pay Levels

When pay level are close, then difference in two job level in terms of job specification becomes very thin. Due to this people gets promotion very easily as there are less differentiation in two job levels. This structure acts as motivation to retain staff.

2. Wide Pay level

In this pay structure, pay levels are separated by wide difference in job specification. Due to this person tend to be in same level for longer time period. People might be given increments but changing level will require specific performance as required by job specification.

Pay Level Example

A simple compensation structure can be as follows:

Here the salary of grade-1 pay level 1 employee is the lowest and the salary of senior project manager is the highest.

Pay Levels and Equity Theory of Motivation

Pay Level are created to distinguish between skill to perform same job and readiness for next level. At the same time perceived equity of work and corresponding pay level play important role in performance of task. If person does not see equity in effort put in by him /her with corresponding pay level, it may lead to demotivation towards work. Hence while designing any pay structures, it is important to keep equity between efforts by occupant of that role and pay level in consideration. If there is very less difference in effort then pay levels should not be different just because person has more experience.

Hence, this concludes the definition of Pay Level along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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