7.3 Job Evaluation and Pay Systems
Job Evaluation Systems
As mentioned when we discussed internal and external factors (internal and external equity), the value of the job is a major factor when determining pay. There are several ways to determine the value of a job through job evaluation. Job evaluation is defined as the process of determining the relative worth of jobs to determine pay structure. Job evaluation can help us determine if pay is equitable and fair among our employees. There are several ways to perform a job evaluation.
1. Job Ranking System
One of the simplest methods, used by smaller companies or within individual departments, is a job ranking system – to assist in attributing a pay grade to each job.
In this type of evaluation, job titles are listed and ranked in order of importance to the organization. A paired comparison can also occur, in which individual jobs are compared with every other job, based on a ranking system, and an overall score is given for each job, determining the highest-valued job to the lowest-valued job.
For example, in Table 7.3.1 Example of a Paired Comparison for a Job Evaluation, four jobs are compared based on a ranking of 0, 1, or 2. Zero indicates the job is less important than the one being compared, 1 means the job is about the same, and 2 means the job is more important. When the scores are added up, it is a quick way to see which jobs are of more importance to the organization. Of course, any person creating these rankings should be familiar with the duties of all the jobs. While this method may provide reasonably good results because of its simplicity, it doesn’t compare differences between jobs, which may have received the same rank of importance.
| Job | Receptionist | Project Manager | Account Manager | Sales Director | Total |
|---|---|---|---|---|---|
| Receptionist | X | 0 | 0 | 0 | 0 = 4th |
| Project Administrative Assistant | 1 | X | 0 | 0 | 1 = 3rd |
| Account Manager | 2 | 1 | X | 0 | 3 = 2nd |
| Sales Director | 2 | 2 | 2 | X | 6 = 1st |
| Based on the paired ranking system, the sales director should have a higher salary than the project administrative assistant, because the ranking for that job is higher. Likewise, a receptionist should be paid less than the project administrative assistant because this job ranks lower. | |||||
2. Job Classification System
In a job classification system, every job is classified and grouped based on the knowledge and skills required for the job, years of experience, and amount of authority for that job. Tied to each job are the basic function, characteristics, and typical work of that job classification, along with pay range data.
3. Point Factor System
Another type of job evaluation system is the point-factor system, which determines the value of a job by calculating the total points assigned to it. The points given to a specific job are called compensable factors. These can range from leadership ability to specific responsibilities and skills required for the job. Once the compensable factors are determined, each is given a weight compared to the importance of this skill or ability to the organization. When this system is applied to every job in the organization, expected compensable factors for each job are listed, along with corresponding points to determine which jobs have the most relative importance within the organization. Some organizations use a point-factor system. Examples of some compensable factors include the following:
- Knowledge
- Autonomy
- Supervision
- Psychological demands
- Interpersonal skills
- Internal and external contacts
Each of the compensable factors has a narrative that explains how points should be distributed for each factor. The points are then multiplied by the weight to give a final score on that compensable factor. After a score is developed for each, the employee is placed on the appropriate pay level for his or her score.
Another option for job evaluation is called the Hay profile method. This proprietary job evaluation method focuses on three factors called know-how, problem solving, and accountability. Within these factors are specific statements such as “procedural proficiency.” Each of these statements is given a point value in each category of know-how, problem solving, and accountability. Then job descriptions are reviewed and assigned a set of statements that most accurately reflect the job. The point values for each of the statements are added for each job description, providing a quantitative basis for job evaluation and eventually, compensation. An advantage of this method is its quantitative nature, but a disadvantage is the expense of performing an elaborate job evaluation.
Pay Systems
Once the job evaluation as been performed, Human Resources can move on to pay grading. This is the process of setting the pay scale for specific jobs or types of jobs.
The first method to pay grade is to develop a variety of pay grade levels. Then once the levels are developed, each job is assigned a pay grade. When employees receive raises, their raises stay within the range of their individual pay grade, until they receive a promotion that may result in a higher pay grade. The advantage of this type of system is fairness. Everyone performing the same job is within a given range and there is little room for pay discrimination to occur. However, since the system is rigid, it may not be appropriate for some organizations in hiring the best people. Organizations that operate in several cities might use a pay grade scale, but they may add percentages based on where someone lives. For example, the cost of living in rural Ontario is much lower than in Toronto. If an organization has offices in both places, it may choose to add a percentage pay adjustment for people living within a geographic area—for example, 10 percent higher in Toronto.
One of the downsides to pay grading is the possible lack of motivation for employees to work harder. They know even if they perform tasks outside their job description, their pay level or pay grade will be the same. This can incubate a stagnant environment. Sometimes this system can also create too many levels of hierarchy. For large companies, this may work fine, but smaller, more agile organizations may use other methods to determine pay structure.
Rather than use a pay grade scale, some organizations use a going rate model. In this model, analysis of the going rate for a particular job at a particular time is considered when creating the compensation package. This model can work well if market pressures or labour supply-and-demand pressures greatly impact your particular business. For example, if you need to attract the best project managers, but more are already employed (lack of supply)—and most companies are paying $75,000 for this position—you will likely need to pay the same or more, because of labour supply and demand.
“Types of Pay Systems” from Human Resources Management – 2nd Ontario Edition by Elizabeth Cameron is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
