Method
Three-track pay: set grade, allowance and bonus separately
Grade follows the person, allowance the role, bonus the results
Nobu Sato7 min read
Contents5
Take a strong engineer the company wants to lead a team. He doesn't really want to manage. But if he doesn't, his pay won't go up.
Or take a manager whose team gets dissolved. The company wants him back as a specialist. By the grade table he either gets demoted or keeps sitting on an empty management grade. The company doesn't dare demote him, and he doesn't want it either.
Both problems have the same root. The traditional grade puts how mature this person is and how heavy this seat is on a single track. Adding responsibility means a promotion. Stepping down means a demotion nobody dares to make. A specialist who doesn't want to manage can only get a manager's pay by managing.
So I split it into three tracks.
| Track | What it follows | How it moves | What stays out |
|---|---|---|---|
| Grade (base pay) | The person | Basically only goes up | Team size, budget, sign-off, location |
| Role allowance | The appointment to a role | Starts when you're appointed, ends when you step down | How strong the person is |
| Bonus | This period's results | Written down at the start, checked at the end | Behavior and ability |
Grade describes the person
A grade looks only at the person: ability, depth of experience, how fast they learn, how independently they can work. All of that comes from the patterns and equipment layers in the four layers.
How many people they lead, how big a budget they hold, whether they sign off, where they're based. Those belong to the seat, not the person. They stay out of the grade.
That means management isn't a separate ladder. It's just one responsibility a role can carry. A specialist and a manager can sit at the same grade, and that's on purpose.
Grades basically only go up. A promotion needs new, specific events as evidence. A big bonus doesn't count. If someone only had a quick assessment, they get a provisional grade, confirmed after the first-90-day verification.
A small Japan entity can start with a small grade table: six grades, each defined only by how big a job the person can carry, how far their judgment reaches, and how much guidance they need. Leave the top two empty, attach titles such as bucho and kacho to the role, and skip sub-steps in year one. A worked example is in Grades Are Not Titles: A Minimum Grade Table for Japan.
Responsibility sits on the role, paid as an allowance
Leading people, carrying a number, making final calls, representing the company externally, compliance sign-off, a time-bound mission. These responsibilities sit on the role. Each one becomes a module, paid as a role allowance. You get it when you're appointed. It ends when you step down.
The modules fall into four kinds.
| Kind | Examples | When it ends |
|---|---|---|
| Scope | Leading people, covering several regions | When the appointment ends |
| Responsibility | Carrying a number, final calls, representing the company, compliance sign-off, a time-bound mission | When the appointment ends; a mission ends with the project |
| Market | A scarce skill, a function the market pays extra for | On its expiry date, after a review |
| Conditions | Posted abroad, on call, working in several languages | When the condition stops |
Each module spells out five things: which requirement of the role it answers to, how many levels it has, how it's priced, when it starts and when it ends, and what counts as evidence.
The most important rule is that a module has to point back to a specific requirement of the role. If it can't, it doesn't get added. That's the only gate that stops companies from inventing a module to fit a person.
Modules are priced in fixed amounts by level, independent of the holder's grade. They're not a percentage of base pay. If they were, every promotion would make the module more expensive, and the two tracks would be glued back together.
A market premium module must have an expiry date and a review when it lapses. It can go down, and it can stop.
If one role carries too many modules, that's a sign to split the role. Stacking more on it only hides the problem.
Results set the bonus
The bonus pays for results only. Behavior and ability are already in the grade. Responsibility is already paid through the allowance. Counting them again in the bonus means paying twice.
| Rule | Why |
|---|---|
| Results are written down at the start; nothing changes mid-period | Otherwise the target moves toward whatever happened |
| One main result, two secondary ones at most | With more, nobody knows what the period was for |
| The data can't be self-reported | A result you report yourself is a claim |
| If a metric can grow without creating value, it stays off | Calls made, resumes submitted and overtime hours all grow on their own |
| No forced distribution; a pool caps the total | The company's results limit the money. No curve limits how many people do well |
Some cases reset the bonus to zero. There are three: crossing a bright line, faking data, or getting this period's results by borrowing from the next. The third is first treated as a miss, and reset only when it is serious. A reset is different from missing the target. A miss is handled in the next period. A reset is handled through the appointment itself.
Company-wide results set the size of the bonus pool. The individual's level sets their share.
The test: a manager goes back to being a specialist
Once the tracks are split, each event moves one track only.
| What happens | Grade | Role allowance | Bonus |
|---|---|---|---|
| Moves to another role, same grade | No change | Reset for the new role | Targets reset |
| Promoted | Moves up | No change | No change |
| Appointed to lead a team | No change | Adds the people module | Adds team targets |
| Steps down, back to specialist | No change | Loses the people module | Team targets removed |
| A good or bad period | Only where the next raise lands within the band | No change | Higher or lower |
The manager from the opening steps back into a specialist role. His fixed pay loses the allowance for leading people, and his base pay doesn't move at all. A traditional grade system can't do that.
Talk numbers first, and the grade you get is the one that got negotiated
Basis: the order for setting pay on a new hire or a new appointment
- 01Judge fitVeto items, the weakest layer, one of five verdicts.
- 02Set the gradeFrom the person alone, with events as evidence.
- 03Attach modulesOnly the ones the role's requirements point to.
- 04Make the offerThe number comes out of the first three steps.
The offer is the last step, after grade and modules are fixed.
The order matters as well. Talk numbers before setting the grade, and the grade you end up with is the one that got negotiated.
Two caveats before you use it in Japan
Rules like "the allowance ends when you step down" have to be written into the wage regulations, and checked by a local labor law professional. Otherwise a pay cut on stepping down can be treated as a one-sided reduction in working conditions.
The model itself is still a draft. The structure is set, but it hasn't been through a full real cycle yet.
On the candidate side, you can take your own offer apart along the three tracks: Read your offer in three tracks.
The next two pages put the order together: Product, sales, organization and Building a Japan entity from zero. Head back to the method overview, or look up a term in the glossary.