Laser encoders overcome the fundamental resolution limit of geometrical optical encoders by cleverly converting the diffraction limit to phase coded information so as to facilitate nanometer displacement measurement. As positioning information was coded within the optical wavefront of laser encoders, interferometry principles thus must be adopted within the design of the laser encoders. This effect has posed a very strong alignment tolerance among various components of the whole laser encoder, which in turn impose a serious user adaptation bottleneck. Out of all alignment tolerance, the head-to-scale alignment tolerance represents the most important hindrance for wider applications. Improving the IBM laser optical encoder design by taking into the consideration of manufacturing tolerance of various optical components, an innovative linear laser encoder with very high head-to-scale tolerance is presented in this article. Efficiency of the TE/TM incident light beams on the grating scale used are examined theoretically and verified experimentally so as to provide design optimizations of the grating scale. Effect of various grating scale, quartz master or polymer-based grating replicate, is also detailed. Signal processing used to decoded the quadrature based positioning optical signal is also studied. Experimental results that verify the resolutions of the tabletop laser encoder prototype by comparing the decoded quadrature signal and a HP laser interferometer output signal is also presented.