Job evaluation: Methods to pay competitively

by Craig Cameron, Consultant, Strategic Pay

Job evaluation is a systematic process by which roles within an organisation are sized according to common criteria. It helps companies ascertain a fair level of pay, and ensures employees are appropriately valued. Each role is compared to others, and the types of responsibilities they have to determine appropriate pay. Find out how, when and why companies should consider job evaluation.

The purpose of job evaluation
Job evaluation is key in providing a level of transparency around remuneration, and creating a framework from which to begin future discussions around pay. A fair pay policy also supports employee morale and, if desired, an open-door approach to such discussions.

The process also assists executives in understanding what's required for succession planning by evaluating the skills required for each role. With the results, organisations are able to understand whether they have the appropriate skills in-house, and what training or planning is required to sustain the business long term.

Organisations may choose to undertake job evaluation for various reasons, and not all businesses need to do so at the same time or with the same frequency. When a company has already sized their jobs, it may not be necessary to repeat the exercise unless roles change. However, where organisations restructure and create new or adjusted roles, it may be necessary to apply the process to the roles affected.

Whatever the reason for job evaluation, the end outcomes should be to ensure all employees are paid and valued appropriately for their work.

Job evaluation is about comparing roles against common criteria to establish appropriate levels of pay.

Common job evaluation methods
There are a variety of ways organisations can approach job evaluation. Which method is used is largely down to the size of the organisation and the scope of the job. In essence, there should be a way by which individual roles are scored and ranked, with pay attributed according to the final outcome.

Ranking: Small businesses may find it's fairly obvious how individual roles relate to each other. Those in higher management positions will rank more highly than unskilled or casual staff, for instance. There may only be one person fulfilling each level of responsibility and so it will simply be a case of ranking roles appropriately.

Points-based system: This method establishes a score for each role based on a number of common factors, such as qualifications, years of experience, how many people the role manages and how much financial control they have.

External remuneration market survey: An alternative way of looking at how pay is awarded is through buying external market surveys and using them to gauge where your employees sit within what's normal elsewhere. This works better for roles where the expectations vary little between employees, such as certain accountancy based roles. It is more difficult to apply this sort of approach to roles such as 'Team Leader' which vary hugely according to the industry and employer.

Market surveys can also be helpful for small businesses that need some additional information from which to start their analysis.

Factor comparison: Rarely used in New Zealand, factor comparison works much the same as the points-based system, but allocates dollars to benchmark jobs or factors. Deciding how much to award in terms of dollars can be quite subjective, but weighting can be used to value a particular factor over others.

Grading/banding system: Large organisations may not realistically be able to approach each role individually. In this case they may opt to use a grading or banding system that allocates roles into job families, such as administration or technical. Each band is ascribed a descriptor which explains what types of roles it should encompass. Within the job family, appropriate levels of pay are determined according to the roles involved, as well as the career progression paths.

How should organisations begin the process of job evaluation?
The way in which job evaluation is carried out depends on the resources available within the company. Some organisations may leave the task to their HR department, valuing their expertise in the area.

Larger organisations may have the capacity to create a job evaluation committee, comprised of employees from across the company. Members of this committee should come from a variety of functions and have different levels of responsibility to ensure objective analysis. This form of job evaluation tends to be left to the larger companies simply because they can afford the time required in training staff in the nuances of job evaluation and for the meetings required.

Alternatively, companies can turn to an outside resource to ensure total objectivity and professionalism. CEOs and Boards of Directors may feel an external organisation are more appropriate when it comes to executive-level remuneration.

Large organisations may choose to form a job evaluation committee in order to ensure roles are sized fairly.

How to manage the outcome of job evaluation
Once all roles have been sized, those responsible need to determine what constitutes an appropriate level of pay. Companies approach this in different ways, but a sensible method is to look at market industry surveys to understand what other organisations are paying. For example, those in the public sector might look at the relative job market and what's happening within that sector, and private companies would typically compare against other privately owned companies to establish a fair rate.

Should a company undertake job evaluation for the first time, or on a large scale, they may find a number of employees require a significant shift in salary. Where an employee is determined as being underpaid, the solution is relatively simple. Should budget allow they can be moved up to the appropriate rate immediately.  If this is compromised by affordability, employers at least have a goal to work towards incrementally.

Where an employee is paid significantly above their job size, an organisation has two options. Either, they admit that the employee is doing a fantastic job and make an exception to the rule. Alternatively, in the interest of fairness, they can freeze salaries until the market catches up.

Organisations may need to implement a full-scale survey of all roles or deal with one or two roles that need some additional attention. It is important to benchmark against external data and have our own, detailed methods for evaluating your roles.

If you'd like more information about how we can help your organisation manage the process of job evaluation, get in touch with Strategic Pay today.