Tuesday, February 05, 2013

Compensation 102: Job Evaluation

The importance of job evaluation is simple. In order to create a competitive yet equitable compensation system, organizations need clear job classifications.  There are also federal laws to take into consideration when designing compensation systems.  Title VII of the Civil Rights Act prohibits employment discrimination based on race, color, religion, sex, or national origin.  The Equal Pay Act protects men and women who perform equal work in the same establishment from sex-based pay discrimination.  The Age Discrimination in Employment Act defends the working rights of individuals 40 years of age or older.  Job evaluation is essential for organizations to be in compliance with these laws.  In short, job evaluation evens out possible wage wrinkles. It also helps to creates clear guidelines for an organization to follow with respect to employees’ wages. This week’s Astronology discusses the importance of job evaluation and the four primary evaluation methods.

The Objective of Job Evaluation

The purpose of conducting job evaluation is to fairly determine the monetary value / worth of a job in relation to other jobs in an organization.  It’s the bridging gap between the relative worth of a position to the organization and the pay range structure into which the position falls. The thought of having to review every job position in an organization can be daunting, especially if the organization is large. Fortunately, this is not always necessary.  Select the key job positions, positions that address or cover the type of work essentially performed in each department.  Using job evaluation results, one can develop appropriate salary grades and decide on other compensation issues. Job evaluation can also help clarify job descriptions that could be used in determining performance standards and creating performance appraisal systems.

It’s imperative that job evaluations are reviewed periodically. Work conditions change over time. For instance, technology advances and new services to benefit the organization become available, potentially changing a position’s grade level or even eliminating certain job requirements / positions.  But where to start!  There are four job evaluation methods to consider, which we will explore here.

The Ranking Method

Considered the simplest job evaluation method, in the Ranking method jobs are listed from highest to lowest value / merit in relation to the organization. This listing can also be done according to level of difficulty in job performance. In this method, jobs are examined as a whole.

This method is highly subjective, which could result in upset employees and low job morale among employees with lower job rankings. This morale impact can be detrimental to an organization’s culture.  The ranking method, however is more time and cost efficient than other job evaluation methods.  The ranking method is often appropriate for smaller organizations, or those with only a few jobs to evaluate.

The Classification Method

Under the Classification method, a predetermined number of job groups / classes are established with a brief description distinguishing each group / class.  Jobs are then matched to these groups / classes based on each job’s content.  This method is easy to understand and more acceptable to employees due to the formal criteria used.  All factors in a position can be taken in account in this method.  The Classification method can be used for a wide range of positions.

A weakness of this job evaluation method occurs when the positions do not match with any of the predetermined job groups / classes.  When that happens, evaluators tend to lean on subjective judgment to classify tricky positions.  This subjectivity may be deemed unfair through the eyes of the workers in such positions, particularly if the dollar pay range amount assigned to the group is less than what the employees expected.

Another consideration before utilizing the Classification method is the time necessary to develop the criteria for each group / class.  Gaining agreement on the measurement definitions may take several weeks, depending on the makeup of the job evaluation committee and the perspectives of its members.

Factor Comparison Method

Instead of ranking by complete jobs, under the Factor Comparison method evaluators rank each key job by predetermined factors. These factors may include the following:
  • Mental Effort
  • Physical Effort
  • Skills Required
  • Supervisory Responsibility
  • Working Conditions
  • Accountability
  • Travel Requirements
Pay is assigned by comparing the weight of these factors.  Wages paid would be divided among the factors, giving more weight to important factors, such as mental effort.

“In seventeen years of consulting and teaching, I’ve only encountered the Factor Comparison method in use a handful of times,” shares Astron Solutions National Director Jennifer Loftus.  “The Factor Comparison method is a very precise method of job evaluation.  However, the complexity of designing and maintaining such a system results in most organizations utilizing one of the other three approaches.”

Point Method

The Point method is the most widely used job evaluation method, primarily because the approach forces raters to view and quantify all key job factors and sub factors.  Factors are prioritized and then assigned points by the job evaluators.  The factor points are then added to determine the position’s total point value.  Jobs with similar points are placed in similar pay grades and pay ranges. The most commonly used factors are the following:
  • Skills
  • Responsibility / Accountability
  • Effort
Organizations may have many sub factors within these three categories.  An example of a sub factor could be educational requirements, which would fall under the “Skill” factor. 

The Point method offers a quantitative approach to job evaluation, minimizing the subjectivity associated with other methods.  Additionally, it is not as complex a system to design and maintain as the Factor Comparison method.  The Point method proves to be an effective middle ground for employers who seek formal job evaluation and have some time and financial resources to devote to the initiative.

Moving Forward

This introductory coverage highlights how complex job evaluation can become.  For example, if using the Point method, once the evaluations are complete, raters have to translate the job evaluation points into monetary values. Reliable salary survey data that gives details on the position’s rate in the organization’s region and industry are needed as reference points.  When unsure which approach makes the most sense for an organization, consulting experts can aid in making the selection decision.  Astron Solutions is here to help! We specialize in compensation consultation and will gladly assist in any inquires in getting started with evaluating your organization’s jobs. Why not reach out today for a free consultation?

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