Methods of Job Evaluation: The Best Way to Match

Salaries

Presented to NPELRAApril 9, 2003

Bruce G. Lawson, CCPFox Lawson & Associates LLC

(602) 840-1070

Objectives

To Discuss:The history of job evaluationThe role of job evaluationSelecting a job evaluation toolAlternative job evaluation approaches

Whole Job RankingMarket PricingPoint FactorFactor ComparisonDecision Band

History of Job Evaluation

1865 - Karl Marx wrote in Das Kapital that the value of goods and services is based on the amount of labor that goes into them

1885 - Frederick Winslow Taylor stated that the content of labor in labor determines the price of labor

1935 - Edward Hay developed the Hay point factor system

1963 - The Equal Pay Act prohibited discrimination on the basis of sex…for equal work on jobs, the performance of which requires equal skill, effort, and responsibility and which are performed under similar working conditions. The EPA formalized non-market based pay plans

Why Job Evaluation

Focus is on internal equity rather than market parity or external competitiveness

There is a strong interest in comparable worth or pay equity

There is limited market data available

Alternative Pay Systems Job evaluation system that supports your

classification philosophy and strategies Mix of reward versus entitlement (base) pay Multiple base salary structure(s) Individual versus group incentives Performance measurement Alternative Reward Strategies

Broad Banding Skill Based Pay Individual Incentives Group Based Incentives

Job Evaluation

Not a science Not a solution to salary problems Not a substitute for managerial decision

making about individual salaries Not a cost cutting technique Not always consistent with the labor

market

Objectives

To systematically establish the relative value of jobs within an organization

Impose a structured approach to determining job value that is objective (to the extent possible) and documented

Provide a basis for pay determination

Distinctions

Job evaluation - Assesses the relative worth of jobs

Performance Appraisal - Assesses the performance of individual employees in the conduct of specific job duties

Position Allocation - Determines the appropriate classification for each position/employee

Non-Quantitative Approaches

Whole job ranking Classification Market Pricing

Quantitative Approaches

Attempt to establish relative worth Give the illusion of being more precise than non-

quantitative approaches Easier to defend to employees and managers Tool should be tailored to job classification

philosophy Point Factor Factor Comparison Scored Questionnaires Decision Band

Whole Job RankingNot a formal methodologyOften used by smaller organizationsNo fixed criteriaNot recognized as valid by the EEOC

Market PricingNot a formal job evaluation methodologyOften used by smaller organizationsOnly criteria is the labor marketEmployees and managers tend to support market

based systems If administered fairly, will take into consideration

both increases and decreases in market conditions. This is often not well received by employees and labor organizations.

Requires considerable market data. Typically, at least 50% of all jobs need to be priced to defend values for related jobs

Point Factor Plans

Focuses on compensable factors - The Federal Equal Pay Act references four factors:

Skill - experience, training, education and ability measured in terms of the job’s performance

Effort - physical or mental exertion needed for job performance

Responsibility - accountability Working Conditions - surroundings and

hazards encountered

Factors

• Skill • Sub-factors include– Knowledge

(education/training)– Experience needed– Credentials or licenses

required– Manual dexterity

required– Analytical ability

required– Interpersonal

communications

Factors

• Effort

• Responsibility

• Working Conditions

• Sub-factors include– Physical demands– Mental exertion

– Impact on the organization– Accountability/– decision making– Supervision

received/exercised– Internal/external contacts

– Hazardous/dangerous environment

– Adverse conditions/Travel

Point Factor PlansFactors and weights must be carefully

establishedSignificant risk of inherent bias by ignoring

stereotypical female qualities such as nurturing & caring, concern for others, cooperation, and cooperation

Supervision and management often benefit empire builders by awarding additional points for the number of people supervised, size of budget, etc. to the detriment of highly technical or skilled jobs

The Process Factors and Weights for each factor are established Degrees (yardsticks) that define the factor range and

its respective intervals, along with point values, are established. For example, Education might be divided into the following degrees: No formal education required Requires reading and writing at the 8th grade level Requires High School diploma or equivalent Requires AA degree or completion of an accredited

trade school (2 year program) Requires a Bachelor’s degree Requires a Master’s degree Requires a Ph.D. degree

Pros and ConsAdvantagesOnce factors and degrees are defined, plan

is stable over timePerceived as valid by usersHigh agreement with ratings if jobs are

carefully definedDocumented process

Pros and ConsDisadvantagesTime consuming and costly to establishTypically requires that pay grades be

established although each point can be given an economic value resulting in continual pressure to upgrade individual positions or jobs in order to increase pay

Subjective assessment needed to establish point range for salary grades

Typically relies on key jobs within the organization

Factor Comparison

A refinement of whole job ranking No detailed criteria Uses universal factors for defining jobs (e.g. skill,

effort, responsibility, working conditions) Each factor can be weighted Jobs are ranked within each factor Labor intensive - involves numerous judgments in

order to build ranking (# jobs X # jobs X # factors = # of individual decisions needed)

Example: 100 job titles X 100 job titles X 4 factors = 40,000 individual decisions that must be made to develop hierarchy

Advantages

Custom made job evaluation plan for the organization

Relative value is easily understood

Disadvantages

Can be difficult to set upNeeds to be re-established each time

a new job is added to the structure or an existing job changes since these actions will affect the overall rankings

DBM - Basic Logic

The value of a job should reflect the importance of the job to the organization

The importance of a job is directly related to the decision-making requirements of the job

Decision-making is common to all jobs

Decision-making is measurable

The Process

Six broad Decision Bands Looks at essential duties of the job Level of each duty is determined Highest banded duty determines Band of the job Within Bands, looks at supervisory relationships and

technical level of job (dual career track) to determine a Grade

Within each Grade, examines difficulty and complexity of the work to determine Sub-Grade (if needed). Allows for consideration of such secondary criteria as time pressures, consequence of error, minimum qualifications, need for care and precision, etc.

Advantages

Only job content is considered - either incumbents do certain work or they do not. Consequently, it is more difficult to manipulate the job ratings.

Factors unrelated to work are not considered in the evaluation (e.g. what employees bring to the job.) Those issues are handled separately as pay issues.

Working and labor market conditions are treated separately as pay premiums, if applicable.

Less complex than other methods, resulting in less cost to administer

Can be applied to either individual positions or broad job classes

Disadvantages

Non-traditional approachResults not as narrowly defined as

other methods which may cause employee concerns. Because groupings are broader, some employees and managers have difficulty understanding how other jobs can be equal to theirs.

Selecting JE Criteria

Acceptable to parties involved Valid as distinguishers among jobs Must be present in all jobs being evaluated Must be measurable Should be independent of each other so as

to not overweight any single factor Some plans with large numbers of factors

often result in substantial bias towards one occupational group or group of individuals resulting in inherent bias -most JE systems need to measure only 3 factors to be accurate

Selecting JE Criteria

Cost to install and maintain the systemEfficiency and effectivenessReliability

Comparison of Methods

Factor DB™M Point Plans

Education and Training

Yes Yes

Contacts with others Yes Yes

Impact of job Yes Yes

Job complexity Yes Yes

Working Conditions Yes Yes

Supervision exercised Yes Yes

ConclusionsBroad Band - DBM is most appropriateNarrow classes - Point factor or DBM are

most commonly usedMarket pricing - Better for classes that are

not to narrowly defined

Issues to ConsiderWhat do you do when market does not

match JE results? Is there really a problem?Confirm the job description?Raise or lower the JE rating?Market premiums?

Conclusions Select job evaluation method that ties to your

classification philosophy Determine whether the JE method is to be used

within only a single job family or bargaining unit or across the whole organization

Involve the stakeholders so they understand why you are using a particular method

Provide a basic understanding of the tool to those affected

Review ratings with stakeholders to identify issues Validate job descriptions is questions about

ratings result since all methods are tied to the job descriptions