Startup Grade Systems: Promotion, Demotion, and HR Structure Design

HR consultant Hiroyuki Kaneda of Implementics explains how startups should design and operate grade-level systems, including when to demote and how to avoid hiring mismatches.

• Grade systems (等級制度) are the most critical pillar of HR design — more foundational than evaluation or compensation systems because they define expected capability levels across a person’s entire tenure.
• Grade level reflects cumulative career-long capability at the company; performance evaluation covers a fixed period (3–12 months) only — conflating the two is a common and costly mistake.
• Kaneda recommends 7–8 grade levels for startups, with only 3–4 actively used; too many grades make distinctions between adjacent levels impossible to articulate.
• Grades should be made public company-wide; individual salaries should stay private except to the managers responsible for compensation decisions, because salary is distorted by market timing and prior-company pay, not pure ability.
• Grades and job titles should NOT be rigidly linked 1:1; a loose correspondence (e.g., grades 5–6 roughly map to senior manager) is workable, but hard coupling breaks down in practice.
• Promotion uses entrance criteria: the candidate must already be demonstrating grade N+1 behavior with repeatability before being moved up — not just graduating out of the current grade.
• In Kaneda’s experience, employees flagged as demotion candidates almost never recover; he treats a grade assignment error at hiring as the root cause and says reversing it is effectively impossible.

2025-06-26 · Watch on YouTube