What is a Graduated Wage?

A graduated wage system involves the setting of compensation levels so that an employee receives higher pay levels based on his or her experience, job grade, seniority, performance level, and so forth. The predetermined wage levels are re-examined periodically to adjust them for changes in local pay and priorities within the firm, to ensure that the system is still competitive in the local labor market and meets the needs of the organization. This tends to result in a gradual increase in pay levels over time.

Example of a Graduate Wage

A customer support representative position initially pays $20/hour, and then increases to $23/hour after one year, and eventually to $30/hour after five years. This is a classic graduated wage scenario, designed to encourage employee retention.