How much should a company pay its employees? If businesses want to retain their best talent, they need to compensate team members with a satisfying wage that makes them feel valued and appreciated. Employees agree as well and consider what they earn to be a critical component of their jobs. An SHRM report found that 60 percent of employees say that the level of compensation at their job was “very important.” It’s no wonder that job satisfaction often goes hand in hand with how much a worker earns. Companies need a fair way to determine wages, and that means conducting a job evaluation.
What is a Job Evaluation?
A job evaluation is a process by which an organization can determine the overall value and worth of a specific job within a company. In simple terms, job evaluations compare roles in an organization and industry at large to one another through a set of predetermined factors.
So why go through the job evaluation process at all? The goal is to set a pay rate for a particular job. This ensures that whoever has that job is paid a fair wage for the type of work they do and the number of hours they spend doing it. It also makes sure to define the proper role and responsibilities that a job has in a company. This can make a difference in everything from what department is best for a position to the types of job interview questions businesses ask.
Why Job Evaluations Matter
It’s more important than ever for companies to perform job evaluations. Paying someone too little means they’re more likely to look for work elsewhere. Additionally, job roles can quickly become outdated, and any business using out-of-date standards risks falling behind. Russian companies suffered for years from outdated job evaluation standards. The reason? They kept using the same framework established by the Soviet Union, even after the USSR dissolved. Because of this, some of their most talented workers had little choice but to come to America to earn good money. For example, Jan Koum, the founder of WhatsApp, was one of them. As a teenager, he struggled in the U.S., too, but found opportunities to showcase his talents and make a name for himself.
Needless to say, businesses should avoid those risks and undertake the job evaluation process. Many companies choose to hire an outside firm or neutral consultants to perform a job evaluation. Senior employees may take part since they have the expertise on what it takes to fulfill a job role, but they will usually try to take a more hands-off approach to guarantee impartiality.
Besides determining the proper pay for a job, job evaluations can also help companies define the role, especially when it comes to job descriptions and specifications. They also outline the expected performance standards and can help workers understand what it takes to succeed in their jobs.
Job Evaluation Methods
Companies have a variety of job evaluation methods they can use when they’re ready to begin the process. These methods fall under several different categories. Knowing the different types helps leaders and their human resources team pick the option that works best for the business.
The quantitative approach looks at hard numbers. People who love data and use it to make important business decisions will likely prefer to work with job evaluation methods centered around quantitative strategies. Others may favor quantitative analysis since it generally means a more objective view of job roles.
Job evaluations sometimes fall under the qualitative approach. This method means companies or consultancies use their own observations and descriptions to define a job. Qualitative strategies tend to be faster, but they can also be more subjective than quantitative approaches.
An internal job evaluation strategy sticks to a comparison of jobs inside the same organization. This strategy tends to focus solely on the company itself and not on outside forces. Small businesses may use this approach since the comparison usually takes less time.
External job evaluations approach the topic a bit differently. They look at the market as a whole and not just the organization. This can be helpful when a business is small or where shortages of skills may exist.
With these different strategies in mind, let’s take a look at the most common job evaluation methods and where they fall under the aforementioned categories.
Point Factor Method: Quantitative/Internal
The point factor method is perhaps the most common strategy companies use for their job evaluations. With the point method of job evaluation, organizations look at a job and determine the compensable factors involved. For example, how much experience is needed to perform the job well? What type of knowledge does the employee need? To whom does the employee report?
Companies assign each of these factors a point score. They then add up the total amount of points and compare that total to the points from other jobs within the organization. From there, companies can choose a fair pay grade for the role based on the overall value it brings to the organization.
Job Ranking: Qualitative/Internal
When a company pursues the job ranking method, they usually do it because it’s the easiest method to follow. Due to its simplicity, it’s a favorite of many small businesses. Organizations simply take all the jobs they have and rank them by order of importance and value. The jobs at the top of the list will have the highest compensation. The jobs on the lower end will receive lower pay.
Essentially, this places every job in a hierarchy based on the opinions of the business leaders. While small businesses may appreciate how easy it is to follow the job ranking system, companies with more than a hundred employees might want to steer clear of it.
Factor Comparison: Quantitative/Internal
When combining the job ranking method with the point factor method, the factor comparison method emerges. First, businesses rank jobs in the organization based on several different factors. Those factors include what each job role manages, the knowledge and skills used, how much freedom they have, and more. Once this is complete, the factors receive a point value. Based on that, jobs can be rearranged and reranked. This new ranking serves as the basis for compensation.
Job Classification: Qualitative/Internal
The job classification method starts with businesses writing a description for each job class in their organization. They then assign each description a grade level. Grade levels may be based on the level of skill needed to do the job. So a classification such as CEO may receive a high grade level.
Businesses may also create grades within the same family of jobs. For example, the sales division may receive its own grade, while the marketing department may have a separate grading scale. Companies set compensation levels for each job based on these grades.
Custom Factor Comparison: Quantitative/Internal
The custom factor comparison method is perhaps the least common strategy because of the resources and time needed to complete it. Companies must also constantly maintain it as they monitor market rates. The method follows many of the same steps as the factor comparison method, only this one is more tailored to an individual company. It also goes into much more detail than other strategies.
Market Pricing: Quantitative/External
The market pricing method is the most common external strategy for the job evaluation process. This method involves looking at market data to determine the average compensation for a particular job role. Compensation surveys from third parties are one way organizations access this information.
However, the market pricing method has a few problems, especially when the data is incomplete or provides an oversimplified view. For example, someone with a job title in one company may have vastly different responsibilities from someone with the same title at another business. Since this method only looks at external factors, it doesn’t take into account internal value and may lead to inequalities.
The Job Evaluation Process
With these job evaluation methods in mind, it’s time to look at the steps that go into the job evaluation process.
The first step of the job evaluation process involves creating a plan. Companies must determine how much time and how many resources they have available for this goal. They also must identify what tools they want to use and if they need outside help.
This part of the process also determines what method, as outlined above, they’ll pursue. Will they try for the common point factor method? Is the job ranking method more in line with their needs? They also need to choose the level of customization they’ll use for the job analysis. A proprietary scheme, for example, usually comes from a consultancy and is designed for use in many organizations. More customized schemes, however, may better serve a specific organization, but they require more resources and fine-tuning.
The second step is designing the job evaluation. This requires collecting important data, often through workshops focused on pay management and how different roles affect businesses. These provide insight into the value of various jobs within a company. This step also identifies what aspects of the job evaluation should serve as the main benchmarks for the organization to follow.
In the validation step, organizations test their designs. That means analyzing the data collected in the previous step. In addition, this is where they implement the job evaluation method they want to follow. Changes come with the testing, as leaders tweak the model and streamline it. A natural consequence of this is that some jobs may fall outside the defined job title roles. Organizations need to look at each of these outlier jobs and find a good spot for them within the model.
4. Roll Out
Once the model has been finalized, it’s time to roll it out for the whole organization to see. For this step, companies need to communicate to their employees two major items. First, they need to explain how the compensation model has changed, and second, why the changes occurred. Workers are protective of their pay, so they’ll likely be defensive about any adjustments management makes, even if the adjustments are only minor. Open communication about such policy changes helps address questions before they arise. Every level of the organization should know about new compensation policies as they can affect everything from performance reviews to the hiring process.
Job Evaluation Maintenance
Once a company has completed the job evaluation process, that doesn’t mean the work is over. Job analysis is an ongoing procedure, one that requires reviews at regular intervals. As a result, companies should conduct audits often to ensure the model is performing well and accurately reflects fair compensation rates. Jobs change all the time, and companies create new jobs with frequency as the times and technologies change. Because of this, evaluating jobs should be a top priority for organizations.
So how often should businesses audit their compensation methods? That depends on the company. Small businesses may not see the same sort of drastic changes large corporations do, so their reevaluations might take place years apart. Larger companies may perform audits more frequently, especially if they have the resources to do so. No matter how often such major reevaluations occur, small changes may be necessary from time to time.
As always, organizations must consider legal ramifications. In terms of compensation, companies must make sure all get paid equally for the same work. If there are any inequalities discovered, they must investigate right away.
The Ongoing Process of Job Evaluations
As explained above, job evaluations should be a constant in companies. They take consistent refinement and use of job evaluation methods to ensure everyone receives what they deserve as they provide value to an organization. They are especially important when it comes to new hires. For more advice on the hiring process and building a team, check out these articles: