Methods of Job Evaluation: The Best Way to Match Salaries

Presented to NPELRA April 9, 2003 Bruce G. Lawson, CCP Fox Lawson & Associates LLC (602) 840-1070

Objectives
To Discuss: The history of job evaluation The role of job evaluation Selecting a job evaluation tool Alternative job evaluation approaches
Whole Job Ranking Market Pricing Point Factor Factor Comparison Decision 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 sexfor 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 nonquantitative 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 Ranking

Not a formal methodology Often used by smaller organizations No fixed criteria Not recognized as valid by the EEOC

Market Pricing
Not a formal job evaluation methodology Often used by smaller organizations Only criteria is the labor market Employees 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 jobs 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
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

Responsibility

Working Conditions

Point Factor Plans

Factors and weights must be carefully established Significant 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 Bachelors degree Requires a Masters degree Requires a Ph.D. degree

Pros and Cons

Advantages Once factors and degrees are defined, plan is stable over time Perceived as valid by users High agreement with ratings if jobs are carefully defined Documented process

Pros and Cons

Disadvantages Time consuming and costly to establish Typically 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 up Needs 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 decisionmaking 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 approach Results 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 system Efficiency and effectiveness Reliability

Comparison of Methods
Factor
Education and Training
Contacts with others Impact of job Job complexity Working Conditions

DBM
Yes
Yes Yes Yes Yes

Point Plans
Yes
Yes Yes Yes Yes

Supervision exercised

Yes

Yes

Conclusions
Broad Band - DBM is most appropriate Narrow classes - Point factor or DBM are most commonly used Market pricing - Better for classes that are not to narrowly defined

Issues to Consider
What 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