Salary grades form a part of the third step of the process of establishing pay rates. In the Job Evaluation step, the difficulty and importance of jobs are established. Using this information, jobs are then clustered together depending on their importance/difficulty.
Therefore, a pay grade or a salary grade comprises of jobs of approximately equal difficulty or importance. Once these jobs are clustered into the appropriate pay grades, each grade is then priced accordingly to establish the suitable compensation for the corresponding set of jobs.