My experience and informal research would suggest that most organizations use a market, or external-based, method (rather than a job content, or internal-based approach like a point factor system) to determine the relative worth and pay opportunities for their different jobs. (See earlier post for more information on the differences between external and internal job evaluation approaches.) The exception to this would be the public sector, where many employers are mandated to use a point factor or other internal-based approach because of pay equity regulations.
Why is market trumping internal job content as a job evaluation approach in most organizations today? Primarily because most organizations today do not have the same luxury of disregarding, or giving "second fiddle" status to the labor market in setting employee pay that they may have had in the past.
Job evaluation approaches which focus on internal job content (like point factor plans, of which the Hay Group had the brand name product for many years) came into prominence in an era when people stayed with the same employer for years, often their entire career. Most hiring was done at the entry level, after which employees typically progressed through the internal hierarchy as talent and opportunity permitted. Sourcing and recruiting talent from the outside, while certainly important, was not nearly as widespread or critical as it is for today's organization. For these reasons, the most important pay relationships were the ones between jobs inside the organization and there was little risk if the internal job hierarchy that developed was out of sync with the external labor market.
Not true any longer. The ability to attract and retain necessary talent is now a key business imperative for most organizations, so the employer who disregards market practices or even gives them "secondary consideration" status in setting pay levels is likely doing so at their own peril. Most organizations today must pay attention to and provide market competitive compensation to their staff. Period.
So ... given the above argument, are there any reasons (other than government mandate) that a job content, or internal-based job evaluation system might be appropriate - or even optimal - for an organization? Well, actually, yes! I have clients who rely on this type of job evaluation approach and feel it is the best choice for them. More on this next week.