Back to Compensation Basics: Job Evaluation

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Back to Compensation Basics Job Evaluation

• March 11, 2009

Tonushree Mondal and Shelley PetersonPhiladelphia
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Objectives of todays session

• Present the concept and purpose of job evaluation
  (JE)
• Build understanding of alternative job evaluation
  methods and job evaluation design
• Spark discussion and new thinking about job
  evaluation systems and linkages to HR and
  compensation systems
• Provide hands-on experience applying alternative
  job evaluation systems
• Position you to better understand the role of job
  evaluation in your organization

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Exercise 1

• What is the biggest job?
• Electrical Engineer
• Finance Director
• Senior Sales Representative
• Business Systems Analyst
• Communications Manager

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What is job evaluation?Concept and purpose
What is job evaluation? What isnt job evaluation?
A method of establishing the relative value of different jobs within an organization A consistent and credible framework for determining job hierarchy and grade structure A process that measures the performance of individuals A comparison of volume of work in different roles A prescription for individual salary levels A scientific process involving no judgment
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What is job evaluation?Market and internal
perspectives
Market
Internal

• Typically ranks all jobs on HOW THE MARKET
  values them
• Value jobs create for the company
• Relative scarcity of skills in the marketplace

• Typically ranks all jobs on HOW THE ORGANIZATION
  values them
• Scope, impact, and contribution within the
  context of the organization structure
• Working conditions

Todays focus
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What JE systems are US companies using?Almost
40 are using a combination of methods
Historically, companies emphasized market value
but increasingly both market and internal value
are considered
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How is market used as a job evaluation
method?Market pricing and slotting how does it
work?
51k
Grade 8
Job A . . . 45,000 Job B . . . 41,000 Job C . .
. 37,000 Job D . . . 34,500 Job E . . .
33,700 Job F . . . 30,000 Job G Job H
Market value used to establish overall job value
45k
Grade 7
42k
Jobs assigned to grade or band with market range
closest to market value
39k
36k
Grade 6
33k
Non-benchmarks may be slotted to the structure
utilizing various approaches
Non-benchmarks
32k
29k

• Non-benchmarks may be slotted by
• Informal slotting
• Utilizing a slotting/ranking tool
• Utilizing a job family/career leveling framework

25k
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Market pricing and slottingAdvantages and
disadvantages

• Advantages
• Easy to explain
• Credible
• Direct link to market value

• Disadvantages
• Difficult if data is not available or markets are
  changing rapidly
• Slotting is open to interpretation hybrid
  jobs are hard to place
• Can not compare jobs across regions/countries
• Does not recognize internal equity
• Not as legally defensible

Used as a primary job evaluation method by 50 of
US companies used in addition to internal JE by
another 38
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What are common internally-focused job evaluation
methods?Alternative systems

• Whole job ranking
• Jobs are ranked considering job content in
  totality and general criteria of worth to the
  organization
• Classification
• Jobs are slotted into grades/levels/bands
  considering aspects of job content compared to
  qualitative factor/criteria descriptions
• Standardized point factor
• Jobs are evaluated and assigned to grades/levels
  considering aspects of job content compared to
  universal qualitative factor descriptions that
  have underlying weights and points that are used
  by many organizations
• Customized point factor
• Jobs are evaluated and assigned to grades/levels
  considering aspects of job content compared to
  qualitative custom factor descriptions that have
  underlying weights and points that tailored and
  specific to the organization

Increasing complexity
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Whole job rankingHow does is work?
Relative to Job A, the value of Job B is greater,
equal or less
Jobs are compared to one another considering
overall value
Job A
Job B
All jobs are compared and ranked to create a
hierarchy
Job E Job B Job A Job D Job C Job F
Organizations may choose to draw lines to
create groups for management purposes
Group 1
Group 2
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Whole job rankingAdvantages and disadvantages

• Advantages
• Simple
• Easy to use
• Easy to maintain

• Disadvantages
• Potential for bias
• May overemphasize a single factor
• Open to inconsistent application

May be used by small, domestic organizations but
not considered best practice
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ClassificationHow does is work?
Band II
Band III
Factor language describes each of the
grades/levels/bands
Professional degree with extensive knowledge
beyond a specialized area
Thorough knowledge of specific field may require
degree or license
Knowledge Skill The depth and breadth of
knowledge to fulfill job requirements. This may
involve different combinations of formal
education, specialized training and job-related
experience.
Jobs are compared to factor language and assigned
to the band of best fit
Exercises independent judgment, with little
guidance or precedent
Under general supervision may deviate from
standard procedures using own judgment
Independent Judgment The extent to which the job
is required to exercise judgment /make decisions
in the absence of supervisory guidance, work
routines, precedents, policies or procedures.
Number of factors is typically limited to a
maximum of six
Organizational Impact The extent to which the
decisions made within the jobs core
responsibilities affect the organization.
Affects entire organization in the long-term
Affects large department or function
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ClassificationAdvantages and disadvantages

• Advantages
• Easy to use
• Easy to explain
• Adaptable to job families

• Disadvantages
• Potential for bias
• Language often open to interpretation
• Difficult to deal with complex organizations
• Difficult to classify jobs that span levels on
  various factors

Commonly used by medium to large-sized domestic
or global organizations
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ClassificationClient example

• Global 18B consumer products organization
• Need to build common understanding and structure
  to manage jobs

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Standardized point factor (e.g., consulting firm
system) How does is work?
Mercers IPE International Position Evaluation
system
Jobs are assessed against standardized factors
and language
Factor ratings are associated with standardized
point values
Total point sums are grouped in pre-set
classes/grades/etc.
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Standardized point factor Advantages and
disadvantages

• Advantages
• Well tested methodology maintained externally (no
  build investment, limited maintenance cost)
• Can compare jobs across functions, and
  organizations (divisions, regions)
• Can handle all jobs benchmark or unique/hybrid
• Potential to directly link to market values
• Easy to outsource

• Disadvantages
• May be viewed as generic/inflexible
• Vendor makes investment/development decisions
• May be considered administratively complex

Commonly used by large, complex global
organizations
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Standardized point factorClient example

• Global, 35B diversified technology,
  manufacturing organization
• Desire to add more rigor and consistency to
  existing classification system

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Customized point factorHow does is work?
Similar to Standardized point factor except
Factors and factor language are developed for
the company
Factor weights and points are customized to
reflect the companys values
Point values are grouped into unique
classes/grades for the company
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Customized point factorAdvantages and
disadvantages

• Advantages
• Can handle all jobs benchmark or unique/hybrid
• Can compare jobs across functions, and
  organizations (divisions, regions, etc.)
• Factors and weights can reflect the
  organizations unique values
• Factor language resonates with internal
  stakeholders

• Disadvantages
• May be considered administratively complex
• High build and maintenance investment
• Risk of loss of system knowledge due to turnover
• Longer implementation timeline
• No linkage to external market data
• Difficult to outsource

Commonly used in small to mid-sized domestic
organizations often used in Canada to comply
with specific Pay Equity legislation
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What are job evaluation factors?Factor
characteristics
What are JE factors? What arent JE factors?
Universal - identifiable in some degree in all jobs Simple easy to identify and define clear language Independent (not highly correlated) criteria that help differentiate relative value Credible reflective of the specific organizations values Compensable representative of what most organizations reward Compliant - reflective of legislative requirements culture and gender neutral Performance-based reflective of the ability to accomplish objectives Quantity-based - related to volume of work Personal - associated with individual characteristics (i.e. flexibility, enthusiasm) All encompassing - reflective of all aspects of jobs and work
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Exercise 2

• What are examples of good job evaluation factors?

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What are commonly used job evaluation
factors?Typical JE factors
Category Description Typical factors
Job context Captures characteristics of the environment in which the job is performed Geographic breadth Independence of action Organization size and complexity Working conditions
Job inputs Captures requirements to perform the job Analysis/problem solving Communication Knowledge
Job outputs Captures contribution in meeting organization goals Impact of decisions Innovation Leadership/people management
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How is job evaluation used in organizations?Linka
ges to HR and compensation systems

• Two of the most common applications of job
  evaluation are
• Role clarification
• Assessment of job design, allocation of
  responsibilities, appropriateness of organization
  structure
• Grade and salary structures
• Development of organizing frameworks to support
  pay management

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Role clarificationHow does is work?
Role clarification document
Identifies and clarifies key responsibilities of
the job
Areas of responsibility
Identity
Acts as a two-way communication process between
the individual and organization
Purpose
Size
Network
Measurement Criteria
Informs objective setting and career development
needs
Requirements
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Role clarificationHow does is work?
Identifies opportunities to make organization
structures more efficient effective
Highlights potential to redesign work to promote
employee empowerment
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Grade and salary structuresHow does is work?
Analyze the distribution across point values to
study natural break points
Test that jobs with similar scope, size and
complexity fall within the same group
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Grade and salary structuresHow does is work?
Develop relationship between points/grades and
compensation
Build salary ranges, incentive targets, etc.
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What technology is used to support job
evaluation?Example Decision tree

• Evaluations using branched-logic questions

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Conducting job evaluationSome guidelines

• Clarify the activity and the areas of
  responsibility within the job dont make
  assumptions take a fresh look
• Evaluate the job and not any one person who
  occupies the job
• Evaluate at a competent level of performance
• Consider normal operations not the effect of
  errors
• Assess the position as it exists now not as it
  may be in the future
• Do not advocate for a particular department,
  function, or group
• Put aside consideration of pay levels
• Remember evaluations are tentative until the
  final list is prepared

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Exercise 3

1. Read the job description provided
2. Determine the appropriate band using the
   classification matrix
3. Identify the factor ratings for each of the
   factors provided

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Why is job evaluation more important than
ever?Applications in todays environment

• The current economic and regulatory environment
  present challenges with which a job evaluation
  system can help including
• Global operations
• Global organizations need consistent structures
  across geographies to compare jobs and support
  mobility
• Organization re-structuring
• Companies changing business models, organization
  structures, etc. need to understand the
  implications on impacted jobs
• Legislative compliance
• Increasing regulations on businesses force
  companies to have pay programs that are legally
  defensible (e.g. Lilly Ledbetter Fair Pay Act)

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Key takeaways

• Organizations use job evaluation systems to
  establish the relative value of jobs
• Job evaluation systems consider the external
  (market) and/or internal value of jobs
• Plans of varying complexity are used ranging from
  whole job ranking to customized point factor
  depending on the nature and objectives of the
  organization
• Job evaluation is focused on the job (sometimes
  difficult to do!)
• Numerous HR and compensation systems are linked
  to job evaluation results

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