The Role of Job-Content Based Job Evaluation in Establishing Global Equity

A client and a reader's comment, both this week, helped call my attention to a need that is driving renewed interest in job content based job evaluation.

In response to my post When Is Job Content (e.g., Point Factor) Job Evaluation Appropriate?, a reader who heads compensation and benefits for an international company added another situation to my list:  the need for a tool to help structure an entire global organization through comparing jobs across countries in order to create a boundary-less organization.  In his mind, this is a key reason why many global companies are considering the move back to "traditional" job evaluation.

I had a number of discussions this week with a client who has hired me to help the organization figure out whether they should replace their current point factor job evaluation system with a market-based approach.  This company is in the early stages of what will eventually be a significant global expansion.  A senior executive confided to me that their current job evaluation system - for all the troubles it has been giving them in other areas - was absolutely instrumental in setting up a pay structure for a new Asian location where valid local market compensation data was very difficult to come by.

Perhaps globalization will indeed spur a new level of interest in point factor job evaluation.  This is a trend that I will watch with interest.

Poll Shows That Most Organizations Used Market-Based Job Evaluation

I was searching this morning for data on the prevalence of different job evaluation approaches for a client and came across this WorldatWork poll published early in 2005 (a few years old, but very relevant stil, particularly since this question does not appear to be addressed in any more recent research I could find).

The WorldatWork poll asked participants to identify the dominant job evaluation method used in their organization.  Nearly 450 members responded, as follows:

• Market pricing - 61.0%
• Point factor - 23.0%
• Whole job (e.g., ranking or classification) 8.8%
• Job component - 3.8%
• Do not use (formal) job evaluation - 3.4%

The data confirm my assertion in an earlier post that most organizations use a market or external-based job evaluation method.  There is also confirmation here, however, that point factor (or internal job content-based) approaches - while they are not currently and probably never will be (save a government mandate) the dominant method - continue to represent a valid choice for a certain minority of organizations.  (See also earlier post on when internal or job content based job evaluation is a good fit.)

Why Job Evaluation Won't Go Away

Job evaluation continues to be an important topic in compensation, long after many compensation experts decided to ignore its existence to pursue more exciting and "hot" topics like incentive pay.  The truth is, however, that job evaluation exists, formally or informally, in every organization that pays employees wages or salaries.  Since beginning an informal series of posts on job evaluation here, I have noticed that these are some of the most widely viewed on the blog - further evidence that the topic remains relevant and of interest.  Or, as another (Dan Purushotham, Ph.D., on the WorldatWork website) has put it so well-

As long as there is work to do, there will be a need to establish the worth of work.  And as long as human beings do this work, there will be a need to establish the relative worth of this work.            

When is Job Content Based (e.g. Point Factor) Job Evaluation Appropriate?

Last week I published a post on market, or external-based, versus job content, or internal-based, job evaluation approaches (like a point factor system).  This included a discussion of why most organizations (outside the public sector) choose to go with a primarily market-based approach to determine the relative worth and pay opportunities for their jobs.

As promised, this follow-up post addresses some of the reasons why an organization might choose to swim against the tide and go with a job evaluation approach that is primarily job content focused.  I have had opportunity to work with a number of organizations that have made this choice; here are some of the reasons they believe an internal-based method is the right fit for them.

1. The organization feels there is insufficient valid external market information to construct and maintain a market based program.  In some cases, this is the result of being in a somewhat unique business - or developing a unique business model to serve their customers - and subsequently finding themselves with a lot of jobs that don't have counterparts anywhere else.  One case in point here, a large nonprofit agency I once worked with was probably ten times larger than the next largest organization in its industry.  That fact, along with its choice to pursue a number of highly specialized services for its clientele, meant that this organization had jobs that didn't seem to exist anywhere else.  As a result, the organization chose to benchmark the few jobs they could with external market pay data, and then rely on a point factor evaluation system to address the value of all other jobs.
2. The organization, typically because it is geographically isolated, has trouble identifying a relevant competitive labor market - often it is the only employer in the area.  Because of this, employees tend to stay with the business for a longer period of time than might be the case in a more active local labor market (which, of course, can be good and bad, but that is for another post ...).  While some attention is paid to tracking general market pay levels (particularly for entry level types of jobs), the organization believes that its best best is to use a job content based job evaluation method to set pay opportunities which reflect the business' own unique internal job relationships and career paths.
3. This reason is one I personally struggle to appreciate and justify, but I share it since I have heard it from more than one employer.  The organization finds tremendous value (usually in terms of organizational acceptance and buy-in) from the use of a cross-functional job evaluation committee.  This committee, typically comprised of managers representing the different major functional areas of the organization, meets on a regular basis to evaluate new and changed jobs.  Members may rotate on and off the committe in a regular, prescribed fashion, or it may be a longer-term appointment.  While the organization may strive to track and incorporate market pay practices into this process, the primary determinant of job value is the consensus of this internal group, using a job content based method to determine where a job best fits in the pay structure and hierarchy.  (My struggle with this isn't in the participation aspect; I get the value of that.  Rather, I am challenged to justify the time and resources - simple man hours - that a job evaluation committee must expend to get this work done in today's fluid and fast changing world.  I don't see the ROI.)

Are there other sound reasons to use an internal-based job evaluation method other than those mentioned above?  I'm certain there are, and I would welcome comments on this based on others' experience. 

Market Vs. Job Content (Point Factor) Job Evaluation

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.   

Job Evaluation: Arresting (the) Grade Creep

One of my clients, a compensation professional in a large service organization, is struggling mightily in the face of a constant stream of requests for job re-evaluations and upgrades.  It can difficult to spend time on the pay initiatives that will truly add value to the organization when you are forced to play Pay Equity Cop, defending against the never-ending creep of salary grades and salaries. 

The reasons for the re-evaluation requests vary, some quite legitimate and others less so.  Is the functional area in question truly changing or growing in scope, requiring different roles and responsibilities to accomplish the key charges?  Or is it a case of a new manager trying to curry favor with her/his subordinates by getting all their job grades raised?  It often takes quite a bit of probing to learn the true reason behind a request.

From a micro-level, I have suggested that some of my clients introduce a brief questionnaire into the process, asking that the requesting managers provide some information and detail as to the nature and history of the situation.  Specifically, I suggest questions like the following:

• Has the job in question gained additional job responsibilities since it was last evaluated?  If yes, please describe these additional responsibilities in the space provided.  Include information on where and by what job these responsibilities were performed before being added to this job.
• Have any of the responsibilities for the job in question been re-assigned since it was last evaluated?  If yes, please note the re-assigned job responsibilities in the space provided and include information on where and by what job these responsibilities are now being performed.
• Has there been any change in the education, experience and skills required to perform this job since it was last evaluated?  If yes, please describe the changed requirements in the space provided, and note the reason behind the change in qualifications.

On a macro level, a never ceasing stream of requests for job re-evaluation and upgrade can be symptomatic of a wide range of underlying problems - anything from a spike in the labor market in a particular discipline which is rippling through the organization to a lack of managerial discipline and accountability around pay.  Ultimately it is in the best interest of the compensation professional to try and get to the real root of the problem, and see what can be done to address the underlying issue.

Job Evaluation is Dead: Long Live Job Evaluation!

I've been involved in a number of conversations about job evaluation lately, and it occurred to me that it might be a good idea to do a few posts on the topic.  This is the first in what I anticipate will be a series.

A basic definition might be a good place to begin.  At its essence, job evaluation is a process or methodology for measuring and determining the relative worth of jobs.  Typically, at least in my world, this is done in order to establish relative pay opportunities.

When people talk about job evaluation methods, often they are referring specifically to formal, job content-based evaluation approaches like point factor plans (more on these at a later time).  I find it helpful to think about job evaluation in a broader sense.  From my perspective, job evaluation exists, formally or informally, in every organization that pays employees wages or salaries (unless it happens to pay every single employee at the same rate).  It may be a "by-the-seat-of-our-pants" approach, but it's there nonetheless.

Coming from this broader point of view, I believe that there are two major categories of job evaluation approaches:

• Market, or external-based, job evaluation.  With this kind of approach, the relative worth and pay opportunities of different jobs are based on their market value or "going rate" in the marketplace.  Job content or internal job relationships may also be taken into account, but are typically secondary considerations.
• Job content, or internal-based, job evaluation.  With this type of approach, the relative worth and pay opportunities of different jobs are based on an assessment of their content (i.e., responsibilities, requirements) and their relationship to other jobs within the organization.  With more simplistic approaches in this category, the job is looked at in its entirety, as a whole.  With some of the more complex approaches in this category, jobs are broken down into and assessed by their different elements or "factors" (i.e. decision making, relationships).  Market influences may also be taken into account, but are typically secondary considerations.

From my perspective, watching the field of employee compensation over the past 20+ years, formal job evaluation (particularly the job content types of approaches) seems to float in and out of vogue over time.  Overall, I sense that many more formal (and job content based) evaluation plans have  fallen out of favor with many organizations, being seen as too rigid and bureaucratic for today's business environment.  There is also a lot of discussion underway about whether job-based pay programs, overall, should be replaced with person-based pay programs (and that is, for sure, a topic for another post). 

Still, I think that job evaluation - broadly speaking - continues to play a critical in setting the foundation of most compensation programs.  Look for more to come on the topic soon.