Pitfalls of Job Evaluation Methods: Three methods of evaluating jobs
Pitfalls of Job Evaluation Methods
Three methods of evaluating jobs are
Ranking.
Classification.
Point Method.
Prepare a short description of each method, considering:
What are the essential weaknesses in each of these evaluation methods?
Describe a situation in which it would not be effective for the business. For example, when would ranking be either impractical or unfair? When would the point method be too complicated to be effective in evaluating work for creating a salary structure?
BACKGROUND INFORMATION ON JOB EVALUATION
Job Evaluation
Job evaluation is defined as the process of analyzing the duties and responsibilities of each job and appraising the value of the job in relation to others in the organization, according to established standards.It provides a systematic means of establishing the proper grade classification of jobs within AUB with the aim of providing equitable compensation to employees.
AUB's Job Evaluation Plan
The Job Evaluation Plan is based on the Factor-Point method which has been effectively applied by many large organizations in the Gulf and other countries in the Middle East
The evaluation factors cover Job Knowledge, Mental Demands, Works Contacts, Supervisory Responsibility, Responsibility for Actions or Decisions, Physical Effort and Work Conditions.An appropriate weighting has been determined for each factor, guided by the weightings of existing plans in the region.Point values have also been assigned to each factor degree according to a rational progression.
Process of Job Evaluation
The steps involved in the job evaluation process are as follows:
a. Organization Review
The first step is a preliminary organization review. This should be carried out with responsible personnel in the organization concerned.
The objective of such a review is to place the jobs in the proper relationship to each other within the organization.
In the organization review, the following points should be considered:
• Whether the job is essential for attaining the objectives of the organizational unit, taking into account functional requirements and workloads.
• Reporting relationships must be clearly defined.
• The possibility of combining similar jobs should be investigated and duplication or overlap of duties avoided.
• The number of jobs and employees should be checked against approved manpower budgets.
• Organization charts should be prepared.
b. Job Analysis
The second step is to identify each job and to find out what the job comprises. This is commonly referred to as job analysis.
Job analysis entails gathering the facts of the job and its environment, analyzing the tasks, duties and responsibilities involved and determining the skills and knowledge required by the incumbent to carry out the job in a satisfactory manner. The information obtained is recorded on a specially designed Job Analysis Form.
c. Job Description
The third step is to prepare the Job Descriptions. This simply means putting down in an orderly and standardized form the information obtained through job analysis. The Job Description consists of two parts:
1. A concise description of the duties and responsibilities of the job.
2. A specification of the minimum education, training and related experience required for carrying out such duties and responsibilities to acceptable standards.
The Job Description is normally prepared either by a Job Analyst or by the job supervisor with the assistance of a Job Analyst. It is always subject to the approval of concerned management. Once approved, the Job Description becomes the formal record of the duties, responsibilities and minimum requirements of the job for the purpose of Job Evaluation.
d. Job Evaluation and Classification
Basedon the information contained in the Job Description, the job will be evaluated under the Job Evaluation Plan. The total points scored for the job will determine its grade classification according to the point ranges established for each grade under the Plan.
Factor-Comparison method
factor-comparison method A method of job evaluation in which jobs are compared with each other in terms of compensable job factors. These may include skill, effort, decision making, working conditions, and responsibility for people, finance, or equipment. Ideally, all factors should be present in all the jobs being evaluated to some degree, so that each job can be scored under each factor heading. The total scores across factors can then determine the sorting of jobs into a set of pay grades, usually by comparison with a number of benchmark jobs. Compare classification method; Hay method; job-component method; point method; ranking method.
Hay method
Hay method A job evaluation system based on three core factors: know-how, problem solving, and accountability. The system, which is named after the US management expert Edward N. Hay, is essentially a combination of the point method and the factor-comparison method.
Point method
point method An analytical method of job evaluation in which jobs are scored on a number of different features (e.g. skills, effort, level of responsibility, working conditions, etc.). The scores are then summed and used to create a graded pay structure. The method, which is very widely used, is essentially a refinement of the factor-comparison method.
Job-component method
job-component method A method of job evaluation in which jobs are ranked according to a statistical analysis of the behavioural demands they impose. The data is usually obtained from employees' answers to a standardized questionnaire.
job-component method A method of job evaluation in which jobs are ranked according to a statistical analysis of the behavioural demands they impose. The data is usually obtained from employees' answers to a standardized questionnaire.
Classification method
classification method A method of job evaluation in which jobs are placed in certain predefined categories on the basis of job title, job description, and comparison with benchmark jobs. It is mainly associated with large hierarchical organizations such as the civil service and local government.
Ranking method
ranking method
1. A simple method of job evaluation in which jobs are ranked according to an informal assessment of their overall importance to the organization. This method is fast and inexpensive but becomes difficult to sustain as organizations get larger and more complex. Compare classification method; factor-comparison method; job-component method; point method.
2. A method of employee evaluation in which a group of employees are ranked on the basis of relevant performance criteria.
Hay's method of Job evaluation in Compensation & Ben
Job Evaluation
*Ranking
Jobs are compared to each other based on the overall worth of the job to the organization. The 'worth' of a job is usually based on judgements of skill, effort (physical and mental), responsibility (supervisory and fiscal), and working conditions.
*Classification:
Jobs are classified into an existing grade/category structure or hierarchy. Each level in the grade/category structure has a description and associated job titles. Each job is assigned to the grade/category providing the closest match to the job. The classification of a position is decided by comparing the whole job with the appropriate job grading standard. To ensure equity in job grading and wage rates, a common set of job grading standards and instructions are used. Because of differences in duties, skills and knowledge, and other aspects of trades and labor jobs, job grading standards are developed mainly along occupational lines.
The standards do not attempt to describe every work assignment of each position in the occupation covered. The standards identify and describe those key characteristics of occupations which are significant for distinguishing different levels of work. They define these key characteristics in such a way as to provide a basis for assigning the appropriate grade level to all positions in the occupation to which the standards apply.
*Factor Comparison:
A set of compensable factors are identified as determining the worth of jobs. Typically the number of compensable factors is small (4 or 5). Examples of compensable factors are:
1. Skill
2. Responsibilities
3. Effort
4. Working Conditions
Next, benchmark jobs are identified. Benchmark jobs should be selected as having certain characteristics.
1. equitable pay (not overpaid or underpaid)
2. range of the factors (for each factor, some jobs would be at the low end of the factor while others would be at the high end of the factor).
The jobs are then priced and the total pay for each job is divided into pay for each factor.
*Point Method:
A set of compensable factors are identified as determining the worth of jobs. Typically the compensable factors include the major categories of:
1.Skill
2.Responsibilities
3.Effort
4.Working Conditions
These factors can then be further defined.
1.Skill
a. Experience
b.Education
c.Ability
2.Responsibilities
a.Fiscal
b.Supervisory
3.Effort
a.Mental
b.Physical
4.Working Conditions
a.Location
b.Hazards
c.Extremes in Environment
The point method is an extension of the factor comparison method.
Each factor is then divided into levels or degrees which are then assigned points. Each job is rated using the job evaluation instrument. The points for each factor are summed to form a total point score for the job.
Jobs are then grouped by total point scores and assigned to wage/salary grades so that similarly rated jobs would be placed in the same wage/salary grade.
Hope this helps. All the best
Rgds
Shara
Hi,
This was a very useful piece of info. Thanks to you all.
i have just finished with setting up grades and levels in my current organisation. Supposing i have to adopt this method, i have listed the below mentioned points to start with. Please let me know if iam in the right track.
1. Define the levels and the skills required at that level.
2. Identify the skills of the employees and their capabilities.
3. The skills/capabilities have to be proven i.e either the company gives them an opportunity to show their skills or the employees come up with some presentation or some project that brings out the additional skills.
4. Both the employees and the employer make the environment condusive to learning and thinking. They have regular interactive sessions, trainings that would provoke thinking.
5. The employer should create an environment where they are given the freedom to act in the manner mentioned above. The working environment should be employee friendly.
Let me know if what i have concluded is right. Also let me know one thing. What is it that this HAY's METHOD is aiming at. Is it better working environment or better learning environment, or employee satisfaction or anything else?
Regards,
Soumya Shankar
am very thankful for your information regarding Job evaluation but i would like to know What is it that this HAY's METHOD is aiming at. Is it for working environment or learning environment, or employee satisfaction or any other beyound the scope the above
thank u once againg for what ever information that u have dicemenated
with regards china
The Hay Method is the most widely-used job measurement system in the world. Today, it is used by approximately 8,000 public and private sector organizations worldwide to evaluate clerical, trade, technical, professional, managerial and/or executive level jobs.
In Canada, the Hay Guide Charts are comprised of four standard factors: Know-How, Problem Solving, Accountability and Working Conditions. These are applied by Hay consultants, trained internal staff and/or committees to analyze and evaluate the skill, effort, responsibility and working conditions inherent in any given job.
The Hay Method enables clients to define and compare jobs within and across business units with unsurpassed rigour and accuracy.
Hay integrated models can cut across an entire organization, or be specific to a distinct group or family of jobs
Executive Compensation
Superior organizational results are driven by a superior executive management team. Attracting people of the right calibre is a major challenge and losing talent to competitors creates both discontinuity and long-term problems. Further, the CEO needs effective incentive tools to add focus to his leadership and to let the team know when it has succeeded. Finally, the Board has an important accountability to ensure that executive compensation serves and supports the interests of the stakeholders.
Simply comparing compensation to market practice and making sure that executives are paid "fairly" does not improve business results. Equity and competitiveness are important, but the linkage of executive compensation to results is critical. Further, how senior management rewards link to the recognition and rewards given to people throughout the organization strongly influences success.
We seek to fully understand what the fundamental drivers of successful organizational results are and how they relate to your strategy and operational plans. An appreciation for the management style of the CEO, his/her executive team and the organizational culture that they want to create is also required.
We use this solid foundation to help both management and the Board to design and implement an effective executive compensation package. The objective is to reward the team in a manner that is valued by incumbents and appreciated by the shareholders or other stakeholders.
Job Evaluation Revisited: The Point Factor Method
Source: John G. Kilgour, Compensation & Benefits Review, Vol. 40 no. 4, 2008
(subscription required)
The point factor method of job evaluation consists of a large number of discretionary decisions that result in something that appears to be entirely objective and, even, scientific.
This article examines the oldest and most commonly used formal approach to job evaluation, the point factor method. It focuses on how and why things are done, with particular attention to the extent to which discretionary decisions are inherent in the process. Other approaches to formal job evaluation (the Hay guide-chart profile method, factor comparison, ranking and classification) are not addressed. However, much of the following discussion pertains to them as well.
Conduct a job evaluation
Your employees want fair pay. Your employees want regular raises. You want to attract and retain talented employees in your organization. Your employees need clarity about their roles and responsibilities as well as about what's expected from them. Job evaluation, performed effectively and used to clarify and revise job descriptions and position responsibilities, is your solution to all of these issues.
As a compensation and benefits specialist, you are responsible for developing a fair compensation plan. Job evaluation is a tool used to evaluate the worth of each job in your organization and in today's labor market. A successful job evaluation system can help you make your organization's pay system equitable, understandable, legally defensible, approachable, and externally competitive. You can use job evaluations to:
Clarify job descriptions so that employees understand the expectations of their roles and the relationship of their roles to other jobs within the organization.
Attract desirable job candidates.
Retain high-potential employees.
What is job evaluation?
Job evaluation is a systematic process that you can use to determine the relative level, importance, complexity, and value of each job in your organization. With a successful job evaluation system, you can compare each job to other jobs within your organization.
It is best to perform job evaluation after work analysis. Job evaluation, in conjunction with work analysis, helps you develop a job description that is broad, descriptive, and flexible so that you can adapt the description to your organization's changing needs.
Assess employee contribution
Job evaluation helps you establish and qualify differences in employee contribution across jobs. These differences provide a foundation for employee compensation decisions. The job evaluation process measures the elements of a job and produces an overall score. In each case, you evaluate the job, not the employee who performs the job.
Assess job content and value
Typically, job evaluation assesses both the content of a job and the value of a job for your organization.
Job content refers to the type of work performed and the skills and knowledge necessary to perform the work.
Job value refers to the job's degree of contribution in meeting your organization's goals and the degree of difficulty in filling the job.
Factors in job evaluation
Job evaluators often assess jobs based on these factors:
Training level or qualifications requirements
Knowledge and skills requirements
Complexity of tasks
Interaction with various levels of the organization
Problem-solving and independent judgment
Accountability and responsibility
Decision-making authority
Degree of supervision required
Cross-training requirements
Working conditions
Degree of difficulty in filling job
Implement job evaluation
The concept of job evaluation often can be intimidating to employees in an established organization. Employees might worry about losing their jobs, and pay might be decreased after job comparisons and evaluations are completed. To help employees accept and understand your job evaluation system, approach job evaluation from an organizational development perspective.
Create a team
To promote widespread support, understanding, and acceptance across your organization, create a cross-functional team to work on job evaluation. The team should represent various levels and jobs within your organization.
Select the job evaluation method
The team can work together to evaluate and select a job evaluation method. Train team members in the requirements of the Fair Labor Standards Act and any other best practices for selecting a job evaluation method for your organization.
Communicate with employees
During the implementation of job evaluation, regularly communicate with employees throughout the process. This helps employees feel a sense of ownership from the results of the job evaluation results.
Steps in job evaluation
The standard steps in job evaluation include:
1. Introduce the concept of job evaluation.
2. Obtain management approval for the evaluation.
3. Train the job evaluation selection team.
4. Review and select the job evaluation method.
5. Gather information on all internal jobs.
6. Use information to fully expand job descriptions.
7. Use the selected job evaluation method to rank jobs hierarchically or in groups.
8. Link the ranked jobs with your compensation system or develop a new system.
9. Implement the job evaluation and compensation systems.
10. Periodically review your job evaluation system and the resulting compensation decisions.
Analyze job evaluation methods
Before implementing job evaluation in your organization, select the most appropriate job evaluation method. Hundreds of job evaluation systems exist. Research the job evaluation methods and resources available online. Five job evaluation systems are most commonly used:
Ranking
Classification
Point evaluation
Factor comparison
Market comparison
Ranking
Ranking jobs is the easiest, fastest, and least expensive approach to job evaluation. It is also most effective in smaller organizations with few job classifications. To rank positions, order jobs from highest to lowest based on their relative value to your organization.
The process of job ranking typically assigns more value to jobs that require managerial or technical competencies. More value is also assigned to jobs that supervise, exercise decision-making authority, or rely on independent judgment. For example, a job-ranking system might rank the job of CEO as the most valued job within the organization and the job of product assembler as the least valued.
Advantages Simplicity is the main advantage in using a ranking system. It is also easy to communicate the results to employees, and it is easy to understand.
Disadvantages Ranking jobs is subjective. Jobs are evaluated, and their value and complexity are often assessed on the basis of opinion. Also, when creating a new job, existing jobs must be reranked to accommodate the the new position.
Classification
The general purpose of job classification is to create and maintain pay grades for comparable work across your organization.
To conduct a job classification: First, write descriptions for a category of jobs; next, develop standards for each job category by describing the key characteristics of those jobs in the category; finally, match all jobs to the categories based on the similarity of tasks, the decision-making exercised, and the job's contribution to the organization's overall goals.
Universities, government employers and agencies, and other large organizations with limited resources typically use job classification systems. These types of organizations have many types of jobs at diverse locations and must maintain equitable and fair standards across all work settings.
Advantage Job classification is simple once you establish your categories. You can assign new jobs and jobs with changing responsibilities within the existing system.
Disadvantages Job classification is subjective, so jobs mightfall into several categories. Decisions rely on the judgment of the job evaluator. Job evaluators must evaluate jobs carefully because similar titles might describe different jobs from different work sites.
Point evaluation
Point evaluation is the most widely used job evaluation method. In a point evaluation system, you express the value of a particular job in monetary terms. You first identify compensable factors that a group of jobs possess. Based on these factors, you assign points that numerically represent the description and range of the job.
Examples of compensable factors are skills required, level of decision-making authority, number of reporting staff members, and working conditions.
Advantage This method is often viewed as less biased than other methods because the job evaluator assigns each job's total points before the compensable factors become part of the equation.
Disadvantages Subjective decisions about compensable factors and the associated points assigned might be dominate. The job evaluator must be aware of biases and ensure that they are not represented in points assigned to jobs that are traditionally held by minority and female employees.
Factor comparison
Job evaluators rank jobs that have similar responsibilities and tasks according to points assigned to compensable factors. The evaluators then analyze jobs in the external labor market to establish the market rate for such factors. Jobs across the organization are then compared to the benchmark jobs according to the market rate of each job's compensable factors to determine job salaries.
Advantage This method results in customized job-ranking.
Disadvantage Compensable factor comparison is a time-consuming and subjective process.
Market comparison
Job evaluators compare compensation for your organization's jobs to the market rate for similar jobs. This method requires accurate market-pricing surveys.
The value of job evaluation
Job evaluation is a powerful tool in the compensation and benefits specialist's repertoire. Effective job evaluation helps you gather information to develop job descriptions that meet the changing needs of your organization. By implementing a successful job evaluation, you can develop an equitable compensation plan and attract and retain high-performing and talented employees.
About the author Susan M. Heathfield is a management and organization development consultant who helps organizations strategically value and utilize people. Her company promotes business success and profitability through consultation, executive and management coaching, organization development strategies, human resources system and policy development, team building, customized training, and writing.
Conduct an effective pay study
Why conduct market pay studies?
Seventy-five percent of all employees are looking for new jobs, according to the 2004 U.S. Job Recovery and Retention Survey released by the Society for Human Resource Management (SHRM) (www.shrm.org) and CareerJournal.com. These survey results also reveal that 43% of employees who are job searching seek better compensation.
Market pay is the compensation paid for a specific job, including information about bonuses and benefits, that is determined by a continual analysis of the competitive job market. Increasingly, with data so readily available, your candidates and internal employees are negotiating their salaries armed with knowledge of market pay data. As an employer, you should be prepared to respond. Market pay data should be a part of your organization's overall strategy to determine equitable compensation. Otherwise, you might not remain competitive.
Recently, a CFO job candidate negotiated his salary with a small company. His potential salary, from legitimate market pay studies, ranged from $120,000 to $210,000. The potential employer, because of its size, needed to settle at the low end; the candidate, of course, sought the higher end.
During the negotiations, the candidate cited six market pay studies, which added to the complexity of the discussions. Market pay studies identified by the potential employer, however, convinced the candidate that the company's offer was worthy, though not necessarily what the candidate desired. The company and candidate settled at $170,000.
How market pay studies help your organization
A recent study by WorldatWork (www.worldatwork.org), an association for compensation and benefits professionals, found a correlation between an employee's satisfaction with pay and an understanding of how the employee's organization determined pay.
Although many organizations use salary surveys and other market data to determine pay ranges, only 36% of the people responding to 2004 U.S. Job Recovery and Retention Survey knew how their pay rate compares with market rates. A similar percentage of survey respondents were unclear about how pay ranges and rates were determined in their organizations.
Because a key factor in employee retention is satisfaction with pay, this figure should serve as a signal to employers that they need to conduct market pay studies and communicate the results to their employees.
In addition to retention, effective market pay studies also help your organization:
Carry out your compensation philosophy (above market, below market, and at market).
Attract talented employees.
Negotiate fair compensation with candidates.
Control compensation costs.
Communicate the rationale for salary grades and ranges.
Improve employee satisfaction through fair compensation practices.
Improve interaction with and trust in management.
To accomplish these results, you should create and maintain an effective market pay measurement system, and you should be knowledgeable about how to integrate salary surveys into your company's compensation philosophy and practices.
How to conduct an effective market pay study
In an ideal world, you'd develop a list of companies that have positions similar to your company's positions, and then you'd communicate job descriptions and pay ranges for each position. You would then have the market pay information needed to establish and communicate employee compensation.
In reality, collecting data that accurately reflects the market rates for jobs in your organization is more difficult. Because your organization's best comparable jobs are likely to be those of your main competitors, information-sharing is unlikely. As you conduct a market pay study, keep in mind that you should use market pay data as part of the overall strategy — not as the sole strategy — to determine equitable compensation within your organization.
Traditional job evaluations, reporting relationships, and comparable jobs in similar pay ranges should all help drive your compensation. Your organization's compensation philosophy and commitment to fair, equitable, and nondiscriminatory pay practices must also play a role, in addition to conducting market pay studies.
Conduct an effective market pay study
1. Assess all jobs within your organization by using job analysis to produce detailed job descriptions. This step is critical. Employees who know that their compensation is partially determined through market analysis of comparable jobs are more likely to object to their compensation if the job descriptions that are used for comparison do not accurately reflect the content of their jobs.
2. Identify salary surveys that most accurately match your organization's types of jobs in your geographic region. Geography is a critical factor because it includes variables such as the local cost of living, the availability of needed talent in the region, and the condition of the local economy. The most valuable data also factors in the size of a company, the number of employees, and the size of a community. In addition, you can glean more information from surveys that show the number of jobs that were averaged to determine the salary range for each type of job.
Obtain salary surveys that best reflect your jobs
1. Obtain salary surveys through your national professional organizations, local companies, and community groups such as the Chamber of Commerce, local IT groups, and local professional associations. Keep in mind that smaller groups, especially those that generate market data through member surveys, have fewer points of data comparison and have many jobs with no relevant data for a company of your size.
2. Look into national organizations that produce market pay studies. The information from Compdata Surveys (compdatasurvey.com), for example, provides real data collected from thousands of companies across the United States. Other sources for market pay data include Salary.com and the WorldatWork vendor directory.
3. Benchmark or match each of your jobs to comparable jobs in the salary surveys that you selected. To perform the benchmarking, use a cross-functional team or work with employees across departments. Make sure that you:
Match jobs to job content, not to job title. As examples, a human resources (HR) generalist in your company might perform all of the responsibilities carried out by an HR manager in a larger company.
Match jobs to the job content, not to the person currently filling the role.
Match jobs as closely as possible. In smaller companies, employees tend to have many diverse roles. When matching comparable jobs in larger companies with a similar job in your smaller company, be mindful of these role differences. For example, in a smaller company, a marketing manager might also be responsible for selling products in the field. The market data for this kind of position should analyze both job types.
Match jobs by using your company's compensation philosophy. If your company pays above-market wages to attract superior candidates, benchmark your jobs above the 50th or 75th percentile. If your company practices variable compensation, benchmark those jobs with bonus potential figures.
You might find that some market pay surveys are more useful to your organization than others. Some surveys more accurately reflect your jobs and the salary levels with which you attract superior candidates. These surveys allow for more equitable division of the pay in your budget by the positions in your organization.
Market pay studies are critical for establishing equitable and fair compensation within your organization. Attracting and retaining superior employees for your jobs is critical to your success as a business, particularly as demographic changes (such as population aging) create a more competitive job market because there are fewer candidates. You can't afford to let the market pass you by. An effective market pay study is your answer.
About the author Susan M. Heathfield is a management and organization development consultant who helps organizations strategically value and utilize people. Her company promotes business success and profitability through consultation, executive and management coaching, organization development strategies, human resources system and policy development, team building, customized training, and writing.
Why conduct market pay studies?
Seventy-five percent of all employees are looking for new jobs, according to the 2004 U.S. Job Recovery and Retention Survey released by the Society for Human Resource Management (SHRM) (www.shrm.org) and CareerJournal.com. These survey results also reveal that 43% of employees who are job searching seek better compensation.
Market pay is the compensation paid for a specific job, including information about bonuses and benefits, that is determined by a continual analysis of the competitive job market. Increasingly, with data so readily available, your candidates and internal employees are negotiating their salaries armed with knowledge of market pay data. As an employer, you should be prepared to respond. Market pay data should be a part of your organization's overall strategy to determine equitable compensation. Otherwise, you might not remain competitive.
Recently, a CFO job candidate negotiated his salary with a small company. His potential salary, from legitimate market pay studies, ranged from $120,000 to $210,000. The potential employer, because of its size, needed to settle at the low end; the candidate, of course, sought the higher end.
During the negotiations, the candidate cited six market pay studies, which added to the complexity of the discussions. Market pay studies identified by the potential employer, however, convinced the candidate that the company's offer was worthy, though not necessarily what the candidate desired. The company and candidate settled at $170,000.
How market pay studies help your organization
A recent study by WorldatWork (www.worldatwork.org), an association for compensation and benefits professionals, found a correlation between an employee's satisfaction with pay and an understanding of how the employee's organization determined pay.
Although many organizations use salary surveys and other market data to determine pay ranges, only 36% of the people responding to 2004 U.S. Job Recovery and Retention Survey knew how their pay rate compares with market rates. A similar percentage of survey respondents were unclear about how pay ranges and rates were determined in their organizations.
Because a key factor in employee retention is satisfaction with pay, this figure should serve as a signal to employers that they need to conduct market pay studies and communicate the results to their employees.
In addition to retention, effective market pay studies also help your organization:
Carry out your compensation philosophy (above market, below market, and at market).
Attract talented employees.
Negotiate fair compensation with candidates.
Control compensation costs.
Communicate the rationale for salary grades and ranges.
Improve employee satisfaction through fair compensation practices.
Improve interaction with and trust in management.
To accomplish these results, you should create and maintain an effective market pay measurement system, and you should be knowledgeable about how to integrate salary surveys into your company's compensation philosophy and practices.
How to conduct an effective market pay study
In an ideal world, you'd develop a list of companies that have positions similar to your company's positions, and then you'd communicate job descriptions and pay ranges for each position. You would then have the market pay information needed to establish and communicate employee compensation.
In reality, collecting data that accurately reflects the market rates for jobs in your organization is more difficult. Because your organization's best comparable jobs are likely to be those of your main competitors, information-sharing is unlikely. As you conduct a market pay study, keep in mind that you should use market pay data as part of the overall strategy — not as the sole strategy — to determine equitable compensation within your organization.
Traditional job evaluations, reporting relationships, and comparable jobs in similar pay ranges should all help drive your compensation. Your organization's compensation philosophy and commitment to fair, equitable, and nondiscriminatory pay practices must also play a role, in addition to conducting market pay studies.
Conduct an effective market pay study
1. Assess all jobs within your organization by using job analysis to produce detailed job descriptions. This step is critical. Employees who know that their compensation is partially determined through market analysis of comparable jobs are more likely to object to their compensation if the job descriptions that are used for comparison do not accurately reflect the content of their jobs.
2. Identify salary surveys that most accurately match your organization's types of jobs in your geographic region. Geography is a critical factor because it includes variables such as the local cost of living, the availability of needed talent in the region, and the condition of the local economy. The most valuable data also factors in the size of a company, the number of employees, and the size of a community. In addition, you can glean more information from surveys that show the number of jobs that were averaged to determine the salary range for each type of job.
Obtain salary surveys that best reflect your jobs
1. Obtain salary surveys through your national professional organizations, local companies, and community groups such as the Chamber of Commerce, local IT groups, and local professional associations. Keep in mind that smaller groups, especially those that generate market data through member surveys, have fewer points of data comparison and have many jobs with no relevant data for a company of your size.
2. Look into national organizations that produce market pay studies. The information from Compdata Surveys (compdatasurvey.com), for example, provides real data collected from thousands of companies across the United States. Other sources for market pay data include Salary.com and the WorldatWork vendor directory.
3. Benchmark or match each of your jobs to comparable jobs in the salary surveys that you selected. To perform the benchmarking, use a cross-functional team or work with employees across departments. Make sure that you:
Match jobs to job content, not to job title. As examples, a human resources (HR) generalist in your company might perform all of the responsibilities carried out by an HR manager in a larger company.
Match jobs to the job content, not to the person currently filling the role.
Match jobs as closely as possible. In smaller companies, employees tend to have many diverse roles. When matching comparable jobs in larger companies with a similar job in your smaller company, be mindful of these role differences. For example, in a smaller company, a marketing manager might also be responsible for selling products in the field. The market data for this kind of position should analyze both job types.
Match jobs by using your company's compensation philosophy. If your company pays above-market wages to attract superior candidates, benchmark your jobs above the 50th or 75th percentile. If your company practices variable compensation, benchmark those jobs with bonus potential figures.
You might find that some market pay surveys are more useful to your organization than others. Some surveys more accurately reflect your jobs and the salary levels with which you attract superior candidates. These surveys allow for more equitable division of the pay in your budget by the positions in your organization.
Market pay studies are critical for establishing equitable and fair compensation within your organization. Attracting and retaining superior employees for your jobs is critical to your success as a business, particularly as demographic changes (such as population aging) create a more competitive job market because there are fewer candidates. You can't afford to let the market pass you by. An effective market pay study is your answer.
About the author Susan M. Heathfield is a management and organization development consultant who helps organizations strategically value and utilize people. Her company promotes business success and profitability through consultation, executive and management coaching, organization development strategies, human resources system and policy development, team building, customized training, and writing.
JOB GRADES, JOB EVALUATION, AND JOBSCORE
An organisation's salary structure defines its pay level for individual or groups of jobs. Determining the structure, ensuring equity in assigning jobs to levels in the structure (and hence their pay level), and aligning the structure with market salaries is the subject of this paper. The influence of performance on pay is considered, and costing salary movements and longer term remuneration planning are touched upon. These issues are addressed through an examination of graded job structures, job evaluation and salary surveys.
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Disclaimer:
________________________________________
The National Remuneration Centre provides the examination contained in this paper for information only and is exempted from any liability arising from its use however construed.
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Henry Warren
Melbourne
Contents
Page
Introduction to Salary Structures 1
1.0 Job Grades 2
1.1 Grade Structures 2
1.1.1 Single Graded Structure 2
1.1.2 Career Structure 4
1.1.3 Job Family Structure 5
1.1.4 Differences between Structures from the point of view of Management and Staff 7
1.2 Determining the number of Grades in a Structure 8
1.2.1 Ranking 8
1.2.1a Simple Ranking 8
1.2.1b Paired Comparison Ranking 9
1.2.2 Classification 9
1.2.3 Point Method 10
1.2.3a Tailor-made and Off the Shelf Systems 10
1.3 Determining the Grade Boundaries 11
1.3a Determining the Number of Grades 11
1.3.1 Determining the Grade Salary Range (Band Width) 12
1.3.2 Aligning Grades to Market Salaries 14
1.3.3 Sumary of Grade Width Types 15
1.4 Individual Job Ranges Structure 15
2.0 Paying for Performance 16
2.1 Performance Bands and Compa-Ratio 16
3.0 Job Evaluation and Jobscore 17
3.1 Jobscore 17
3.1a Jobscore Factors 19
3.1b Conducting Evaluations with Jobscore 21
4.0 Using Surveys to set Salary Levels 22
5.0 Budgeting for Remuneration 23
6.0 Long Term Human Resources and Remuneration Planning 24
The NRC specialises in the development of grade structures and the provision of supporting market salaries. The tools provided by the NRC for this process are its job evaluation system Jobscore and its salary surveys. Access to Jobscore and market data is by annual licence. Details of Jobscore, an internet-based system, and the market salary surveys can be seen at the NRC website www.natrem.com.au. Jobscore and NRC survey data are also used to support and strengthen existing grade structures within organisations and for longer term remuneration planning.
Introduction to Salary Structures.
An organisation's salary structure consists of salary levels for either individual jobs or groups of jobs. Each level in the structure is referred to as a grade, similar to a rung on a ladder. To cover different classes job, for example different levels in the organisation or different job functions, more than one structure may be used. These structures are made up of one or more sets of job grades and each grade has either a single salary or a salary range associated with it. To administer salaries in a structured manner requires a logical method for establishing the structure, assigning jobs to levels in the structure, and setting salary levels for the structure. This paper describes such methods.
There are four main types of salary structure:
• Graded
A graded structure is a sequence of job levels. These levels are referred to as grades. All jobs in a particular level or grade are broadly of equal value to the organisation. Each grade may have a single salary or a range of salaries associated with it. Where there is only a single salary associated with a grade, all employees whose job falls in the same grade are paid at the same rate. Where each grade has a range of salaries the level of pay, within the grade range, for individual employees in the grade could depend on their performance or their length of service. It is an import to ensure that jobs of close to equal value to the organisation are in the same grade.
• Individual job ranges
An individual job range structure places each separate job in its own grade, with its own salary range. In other words, there is only one job to a grade. Such a structure is useful where the job content for individual positions varies widely, or where flexibility in response to rapid organisation change or market-rate pressure is vital. Here distinct differences between jobs are not blurred by grouping them in a rigid grade structure.
• Maturity curves
Maturity curves, salary progression curves, or career curves, link increases in salary over a long period to increases in maturity or experience of the employee. They are best used for professional, scientific or other highly qualified staff who are carrying out work in which their contribution is almost entirely related to their professional capacity, rather than to a fixed set of duties which allows them to be firmly placed in some hierarchy of jobs. This system assumes that incumbents will develop within their discipline at some standard rate related to their experience. A range of salaries at each step on the scale allows for additional merit pay.
• Rate for age
A rate for age system is an incremental scale where for certain jobs a specific rate of pay, or a defined pay bracket, is linked to the employee's age. Rate for age scales are usual for young employees under training or for junior clerical, service or technical staff carrying out routine work. The assumption is that they are on a learning curve and that their value to the organisation is directly linked to experience and maturity. A range of salaries at each step on the scale allows for additional merit pay.
Desirable features of a salary structure:
• Appropriate to the organisation in terms of the size of the organisation, the degree to which the organisation is changing, the need for employee mobility, and the type and level of employee to be covered.
• Enables labour market wage pressures to be met and the need to give individual employees special (performance related) rewards without undue cost or distortion of the overall salary structure.
• Treats varying levels of role responsibility and incumbent performance consistently.
A further consideration is whether an organisation should have more than one grade structure in place. The advantage of having just one structure to cover all staff is that a consistent approach to grading and salary control can be adopted across all levels in the organisation. A single structure is easier to explain and understand, and borderline cases that may otherwise fall between separate structures are avoided. However there are arguments for and against this.
Jobscore concerns itself with the establishment and management of graded and individual job range structures, and their corresponding salary levels.
Jobscore, and this paper, concentrate on graded structures. An individual job range structure can be considered a special case of a graded structure where each individual job is in its own grade. Jobscore measures job content and is therefore inappropriate for maturity curve and rate for age structures because those structures are independent of job content, concentrating rather on the single dimension years of experience.
1.0 Job Grades.
The advantages of a grade structure are:
• The relative levels of positions in different job functions can be readily assessed and recognised.
• Consistent methods for grading jobs and establishing differentials between them can be maintained.
• A well-defined and comprehensive framework is in place within which salary and career progression can be planned and controlled.
• Better control can be exercised over salaries for new starters, merit increments and promotion increases.
Adopting a graded salary structure requires that the following be addressed:
1. Is more than one grade structure needed, or can one cover all employees.
2. How many grades should there be in a structure.
3. How wide should each grade be (i.e. what minimum and maximum pay level [band width] for each grade).
4. How to assign jobs to grades, and review existing assignments.
5. How to set the salary levels applicable to each grade, and keep those levels market competitive.
6. How to set the salary level for individual employees.
Point 1 above depends on the diversity of jobs in the organisation and the extent to which salary levels for job sub-groups are to be differentiated. Jobscore addresses points 2 to 4. Jobscore in conjunction with NRC salary surveys addresses point 5. The organisation's performance appraisal system addresses point 6.
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1.1 Grade Structures.
The first question to consider is which grade structure or structures to adopt. There are three structures to consider:
• Single
• Career Family
• Job Family
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1.1.1 Single Graded Structure.
The main features of a single graded structure, illustrated in Figure 1 following, are:
• All jobs are covered by a single uniform structure.
• Each grade is defined in terms of groups of similarly valued jobs, or a range of job evaluation points if job evaluation is used.
• All jobs with a similar value to those in a particular grade, or with a job evaluation score falling within the range of points applicable to the grade, are allocated to that grade.
• A single salary, or a salary range, is attached to each grade (salary ranges for adjacent grades may overlap).
• All jobs within a grade are paid the same single grade rate, or within the same salary range, with variations in pay for individual employees due to different performance levels.
• There is scope for individuals to progress from one grade to the next, by taking on more highly skilled jobs.
The advantages of a single graded structure are that:
• The criteria for grading and upgrading jobs are clearly defined in terms of the grade descriptors or job evaluation scores where job evaluation is used.
• As long as the scheme is non-discriminatory in both design and application, equal pay for work of equal value requirements are met.
• All categories of staff are treated the same - the impression is not given that some staff are more privileged with regard to career and pay progression prospects than others, which can happen in a job family structure (as discussed in Section 1.1.3 following).
• It is the easiest structure to manage and readily understood by employees.
The disadvantages are that:
• It depends on a single, universally applicable, assessment or job evaluation scheme to cover all jobs. (Jobscore is a universally system.)
• It does not cater for the possibility that the progression or promotion paths in some occupations may not fit into the standard pattern of grades.
• It does not clarify specific occupational career paths.
In the discussions that follow, we assume each grade carries a range of salaries.
Each grade is defined by the level of skill required to perform duties in the grade competently. The definitions should be quantitatively stated, rather than qualitatively. There is less opportunity for "loose" interpretation of the grade's requirements with a quatitative definition.
Jobscore determines the points ranges, NRC salary surveys give the corresponding market salaries.
1.1.2 Career Structure.
Career structures provide identifiable grades within an overall, organisation-wide salary structure to cater for progressive steps in a particular career strand. Examples of career strands are: Arts and Museum Administration, Athletics, Engineering and Architecture, Finance, Health Administration, Human Resources Administration, Information Technology, Legal and Government Relations, Purchasing, and Safety and Security.
The main features of a career structure, illustrated in Figure 2 following, are:
• A career-graded structure is a single graded structure sliced vertically into 'career families'. A career family contains jobs that have common elements in terms of their function and the type of knowledge required. There are defined career paths for progressing to higher levels in the family and into roles requiring related knowledge and skills in other career families.
• The successive levels (grades) of each career family are defined by reference to the key activities carried out and the knowledge and skill requirements to perform effectively at each level. Particular career families may not be represented at each level (grade) in the overall structure and some levels may be common to more than one career family.
• Corresponding levels (grades) across career families are defined by the same range of job evaluation points (assuming a job evaluation system used) and the same pay range. Jobs evaluated within a particular grade range are allocated to the same grade irrespective of career family. All jobs at the same level across the career families are paid within the same range.
• There is scope for the salary of individuals to progress through a level by increments.
• Individuals can move across career strands as appropriate to gain broader functional experience. For example moving from a line role to a marketing or staff role, then back again to a line role.
The advantages of this structure:
• Defines career paths within career families, thereby facilitating career planning.
• Identifies routes for career progression between career families by clarifying the skill an individual required should they wish to move to a new career path.
• Provides the basis for personal development planning by defining the knowledge and skills required at higher levels or in different functions and therefore what needs to be learnt through experience, education or training.
• Defines promotion criteria and pay ranges and scope for progression.
• Recognises that career progression can take different routes, depending on the profession or occupation, but that these routes can intersect.
• Facilitates the achievement of equal pay for work of equal value through the existence of a common grading system (supported by job evaluation).
• By linking pay and grade management with career development, it is in accordance with best practice human resource management.
The disadvantages of a career-graded structure are:
• Whatever emphasis is placed on career development between as well as within career structures, they could be perceived as being divisive and in conflict with the principle of identical treatment for all as enshrined in a single grade structure. It may be inferred that progression can only take place in one occupational silo even if that is not the case.
• The addition of career families to the structure restricts flexibility.
• Some jobs may not fit into any of the families in the structure.
• The requirement to define career family levels.
Career family structures can be further broken down to form Career Bands. For example, within an Information Technology career family, bands may be systems development, operations, consulting, telecommunications, and data architecture.
Use Jobscore to build graded career structures
and NRC salary surveys for career family salary levels.
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1.1.3 Job Family Structure.
A job family structure consists of independent graded structures, one for each job family, with no relationship between individual family structures in terms of grade alignment or salary level.
The main features of a job family structure, illustrated in Figure 3, are:
• A number of job families (typically three or four) are identified, each contains groups of jobs in which the type of work and the knowledge and skills required are broadly similar, but the work is carried out and the knowledge and skills are applied at different levels.
• Separate job family grade structures are developed for each job family; each consisting of a number of levels which can vary between families.
• The number and width of levels (grades) within a job family can be different to the number and width of levels in other job families.
• The range of job evaluation points (if based on job evaluation) and pay can vary between levels in different job families. There is not necessarily a cross-correlation between any two family structures.
• Levels within job families are defined in terms of the essential activities and knowledge and skill requirements for the level (as measured by a job evaluation system, if used).
The advantages of job family structures are:
• Recognition that career progression patterns may vary between different job families.
• Maps out career paths by defining the competencies required at different levels and shows clearly how progression can take place within job families.
• Can vary the size of the progression ranges (incremental scales) in different job families.
• Enables pay for different job families to reflect differing market rates.
The disadvantages are:
• While it can be argued that some occupations are best treated separately because they require very different skill sets, job family structures can be divisive by creating occupational 'silos' and by apparently favouring some roles and occupations.
• Job families may further career development within a family but they could inhibit career flexibility (moving between families).
• In the absence of a common grade structure, it may be difficult to ensure that equal pay for work of equal value is achieved across job families. To provide for equal pay it is necessary to resort to benchmarking (comparing the job evaluation score and pay of individual jobs), this can be a difficult and cumbersome process. Significantly different market salary levels between job families may also compromise equal pay for work of equal value.
• They are more difficult to administer than the simpler structures.
Examples of job family groupings for an academic institution are:
• Education, Research and Enterprise: Professors, Senior Lecturers/Lecturers, Readers, Senior & Research Fellows, Teaching Assistants, Research Assistants, Research Scientists and Engineers, Research & Academic Consultants, Research-focused Experimental Officers.
• Management, Specialist and Administrative: Managerial and administrative, clerical, computing and library staff.
• Technical and Experimental: Technicians, Technical-focused Experimental Officers.
• Community and Operational: Sports Officers, Day Nursery staff, Halls staff, Security staff, Maintenance staff, Manual staff.
In a manufacturing organisation typically, these are : General Management, Engineering, Research and Development, Production (and Procurement), Marketing (and Distribution), Finance, Administrative Services, Information Systems.
Figure 3. A job family structure:
Use Jobscore to build graded job family structures
and NRC salary surveys for job family salary levels.
1.1.4 Differences between structures from the point of view of management and staff.
From the point of view of management the likely practical differences between the three grade structures, Single, Career Family, and Job Family are:
• A single graded structure is easier to explain, manage and justify but it does not provide a basis for career planning and development.
• A career family structure is more difficult to explain and manage than a single graded structure but provides a framework for career planning. More effort is required to design and define a career family structure than a single graded structure. It is less divisive than a job family structure.
• A job family structure provides a framework for career planning, but mainly within families. It caters for different patterns of career and pay progression. More effort is required to design and define this type of structure than a single graded structure.
From the point of view of staff the likely practical differences are:
• A single graded structure is easier to understand, and is not divisive. However, some staff may believe that it does not properly cater for their particular career progression patterns.
• A career structure might be welcomed by some if not all staff as a clearer expression of career opportunities within and between career families, but could be perceived as divisive.
• A job family structure is likely to be seen by many staff as more divisive than a career family structure especially if there are differences in the scope for progression between job families.
1.2 Determining the number of grades in a structure.
Whichever structure is chosen, single graded, career family, or job family, the number of grades in each 'spine' of the structure needs to be determined. At one end of the scale, each individual job can constitute its own grade, and this is common in pure-job evaluated salary administration systems. The other, unlikely extreme is for all jobs top be in a single grade. In a pure-job evaluated salary system, each individual position's job evaluation points determine its salary (and range). [This is the individual job ranges structure. See Section 1.4 following for a more detailed discussion.] To answer the question 'how many grades are required in a structure', one first needs to address the question of how to differentiate between jobs so that one can determine whether they do indeed fall into different groups. The process of differentiating jobs requires that they be ranked.
Three methods for ranking jobs are:
• Simple Ranking
• Classification
• Point Method
Simple ranking is neither qualitative nor quantitative. Classification methods allow qualitative differentiation and the Point method allows quantitative differentiation.
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1.2.1 Ranking.
This method relies on job descriptions or job titles for the positions to be ranked. Each job is considered as a whole and placed in a 'felt fair' rank order to produce a league table. It is considered the simplest method since there is no attempt to break down or analyse the job in any way. It is therefore easy to understand and implement, particularly with a small number of jobs. Two basic types of ranking can be used: Simple or Paired Comparison.
1.2.1a Simple Ranking.
This method is one of the easiest to administer. Jobs are compared to each other based on the overall worth of the job to the organisation. The 'worth' of a job is usually based on judgements of such as aspects of the job as skill, effort (physical and mental), responsibility (supervisory and fiscal), working conditions, and any others that the assessors deem relevant. Advantages
• Simple.
• Very effective when there are a relatively few jobs to be evaluated (less than 30).
Disadvantages
• Difficult to administer as the number of jobs increases.
• Rank judgements are subjective.
• Since there is no standard used for comparison, new jobs would have to be compared with the existing jobs to determine its appropriate rank. In essence, the ranking process would have to be repeated each time that a new job is added to the organisation.
1.2.1b Paired Comparison Ranking.
This is also a relatively simple technique. Each job is compared as a whole with each other job in turn. A score (0, 1 or 2) is awarded according to whether its overall value is judged to be less than, equal to, or more than the job to which it is being compared. The scores awarded for each job are then totalled and a rank order produced. This method has all the advantages of job ranking and is slightly more systematic. However, it is best limited to organisations with a maximum of 30 jobs in a particular job population and, like simple ranking, it does not involve any analysis of jobs nor, importantly, indicate the extent of any difference between them.
For example, consider the four jobs: labourer, accountant, market analyst, and chief executive.
Labourer Accountant Market Analyst Chief Executive Row Total Rank
(1 is high)
Labourer - 0 0 0 0 4
Accountant 2 - 1 0 3 2
Market Analyst 2 1 - 0 3 2
Chief Executive 2 2 2 - 6 1
The row totals give the jobs' relative ranking (but not a measure of their value).
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1.2.2 Classification.
This is also a 'whole job' assessment method. In job classification, the number of grades is decided first and detailed grade definitions produced. (Subsequent examination, after ranking has taken place, may result in a change to the initial number of grades.) This method may be used where groups of jobs can be clearly defined, such as with clerical and administrative roles.
Because of differences in duties and skills, grades are developed mainly along occupational lines. The grade definitions do not attempt to describe every work assignment of each position in the occupation covered, rather they identify and describe the main characteristics of the occupation that are significant for distinguishing different levels of work value. They define these characteristics in such a way as to provide a basis for assigning the appropriate grade level to all positions in the occupation to which the standards apply. Well-defined grades/categories attempt to define the grades/categories with no overlap to avoid problems when assigning jobs to the grades. Representative (benchmark) jobs are assessed to validate the definitions. Other non-benchmark jobs are then slotted into the structure based on the grade definitions.
This method is easy to understand and allows for some consideration of skill content. There may however be a temptation to grade jobs according to how they have been paid or viewed historically rather than according to their skill requirements, also aspects of individual jobs may straddle job definitions.
Advantages
• Simple.
• The grade/category structure exists independently of the jobs. Therefore, new jobs can be classified more easily than the Ranking method.
Disadvantages
• Classification judgements are subjective.
• Some jobs may appear to fit within more than one grade/category.
1.2.3 Point Method.
The point method is an analytical technique that breaks down each job into a number of factors, for example: knowledge, problem solving, and accountability. These factors are frequently broken down further into sub-factors. For example, knowledge can be divided into, education, interpersonal skills and resource management skills. These sub-factors are further divided into degrees or levels. Points are awarded to a job based on the level of skill required at each factor. The combined points decide a job's place in the ranking order. A points rating scheme has the following advantages:
• It provides a ranking of jobs that also provides a quantitative measure of the differences between jobs.
• It is generally less subjective than non-analytical methods.
The disadvantages of points rating are that it can be time consuming to introduce and complex and costly to undertake and maintain. It can also imply a level of precision that is not justified.
Jobscore is a Point Method.
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1.2.3a Tailor-made or 'off the shelf' job evaluation systems.
A prime consideration in deciding which analytical job evaluation scheme to select lies in the choice of factors and weightings, i.e. which aspects of a job are measured, and what overall weighting is given to each aspect.
The benefit of proprietary, off the shelf systems is that they normally have been well tested. Many are linked to market salary information. There is also a saving in time as opposed to developing an in-house system.
The benefit of a tailor-made scheme is that the factors and definitions can be aligned specifically to the jobs to be evaluated. However, developing a job evaluation system is a highly specialised activity and the organisation may not have the skills necessary to produce a sufficiently robust system. If an organisation were to develop an in-house system then quite likely external, expert assistance would be required. Altogether this can work out to be a very expensive option.
There is also the option of modifying a proprietary system to better suit a particular organisation or industry. As a minimum, factor level descriptions can be modified to reflect the organisation's job types.
Jobscore factor level descriptions can be customised, but not its underlying structure.
Amending its underlying structure could affect its universal applicability.
1.3 Determining the Grade Boundaries.
By using job evaluation to assess each job, or a set of benchmark jobs representative of all jobs, the jobs can be arrayed in ascending order of their job evaluation or points. The next step is to divide the jobs into groups where each group consists of positions with a similar number of job points. These groups form the basis on which individual grades in the structure are built. There is no magic formula for determining where the boundaries between groups should fall, and is possibly best done by inspection to see where natural breaks between groups of jobs appear. Where such significant gaps do not exist, the jobs with common features as indicated by the job evaluation factors are grouped so that a clear distinction can be made between the characteristics of the jobs in different groups. It should be possible to demonstrate that the jobs grouped into one grade resemble each other more than they resemble jobs placed in adjacent grades. The width of each group or grade in terms of job evaluation points should represent a significant step in demand as indicated by the job evaluation scheme. This process can yield the final number of grades required for the structure. Further considerations include:
• The range and types of roles to be covered by the structure. (There may be jobs in the organisations that are genuinely outside of the structure.)
• The range of job sizes to be accommodated in the structure. (How far down in the organisation should the structure apply, and how far up?)
• The number of levels in the organisational hierarchy. (The more levels inherent in the organisation, the more levels are likely to be required in the grade structure, if only because of the size and complexity of the organisation. Grades should neither consciously nor unconsciously be aligned with organisation level.)
• The greater the number of grades the smaller their width and vice versa. (This is associated with considerations on what is regarded as a desirable range of salaries for grades, taking into account the need for scope in salary progression and the size of salary increments).
• The problem of 'grade drift' (unjustified upgrading in response to staff or line-manager pressure, or because job evaluation has been applied in a lax manner). This can be exacerbated if there are too many narrow grades.
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1.3a How many Grades?
Typically, conventional graded structures tend to have between eight and twelve grades. Research covering a sample of 2,000 organisations in the United Kingdom found an average of ten grades covering managerial, executive and profession staff. The research also found that the number of grades was not significantly affected by the size of the organisation: Although one could reasonable assume variation between the two extremes of organisation size. Larger organisations may also tend to adopt different structures for different employee classes, e.g. a separate structure for senior management, differing structures between technical and non-technical employees, etc. Larger organisations may also operate in more than one industry where norms differ markedly, e.g. manufacturing and retail, or finance and travel.
Other research shows a 15 to 25 per cent differential between grades (between the midpoint of one grade to the next). Fifteen percent has been shown to be large enough to provide an adequate increase between grades, and sufficient to avoid excessive argument about marginal cases. It is also of such size as to allow adequate flexibility to accommodate a wide range of jobs.
If the difference between grades is too small, say less than 10 per cent, many jobs would become borderline and frequent reassessments would be needed to ensure they were still in the correct grade. Job evaluation is not sufficiently discriminating a tool (nor is any other) to identify very fine differences in marginal cases. In these cases, jobs could be upgraded to the next grade without adequate increases in evaluation. This tendency to 'grade drift' erodes the structure's validity.
If differentials between grades are too wide, say more than 25 per cent, it would be difficult to justify a move to a higher grade for most jobs, even though some upward movement may be appropriate. The only area where steps as wide as 25 per cent may be applicable is at the very highest levels in an organisation, say between the most senior position and the second level, and between the second and third levels.
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1.3.1 Determining the Grade Salary Range (Band Width).
Each grade has a width in terms of catering for a range of job sizes (grade width), and a corresponding range of salaries referred to as the grade's salary band width.
Considerations for determining the number and width of grades are discussed in Section 1.3 above. The width of a grade is defined in terms of the span of job evaluation points it covers, for example:
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5
154 - 191 192 - 239 240 - 299 300 - 374 375 - 486
Job Points Ranges
Each grades can be the same width, however it is more likely that individual grades are of differing widths, become wider as the grade increases. In the above example, each grade is successively 25% wider (the midpoint job evaluation of each grade is 25 per cent higher than its predecessor).
While the width of the grade specifies which jobs would fall into the grade because of their job evaluation points, width does not specify explicitly what salary level or range applies to the grade. The single salary level for each grade, or where applicable the salary range, adds a second dimension to the model.
Each grade must have a salary level associated with it. This salary becomes the underlying salary for all jobs in the grade. Such salaries are determined from market surveys, and the translation of salary levels from surveys into the grade structure is addressed in Section 1.3.2.
It may be that there is a single salary applicable to all positions and all employees in the grade (and this can be true in non pay-for-performance environments). In this case the above diagram may be presented as follows, where a single salary level for each grade is shown:
Table 1.3.1
Grade Salary Level
($) p.a. 38,700 45,300 53,700 64,100 77,200
Grade 1 2 3 4 5
Points Range 154 - 191 192 - 239 240 - 299 300 - 374 375 - 486
Many organisations would have a range of salaries applicable to a grade to reward growth and advancement of employees in the grade. Hence, for each grade, there would be a range of salaries extending above and below the 'mid-point' or single rate salary for the grade. How wide should this range be is the next question.
The wider the grade, i.e. the bigger the range of job sizes it contains, the bigger the spread of salaries that can be justified. However, the underlying purpose of a range of salaries for a grade is to enable an individual's pay within a grade to move in relation to the their performance in the job. [Necessarily therefore, an adequate performance appraisal mechanism is also needed (see Section 2.0 for a brief introduction to paying for performance).]
Reasonably wide ranges, at least 15 per cent on either side of the mid-point salary gives an adequate spread (35% plus) in salaries for the grade (see diagram following), thereby also providing some flexibility in fitting jobs into a grade where their evaluations or market rates differ slightly.
Grade Min. Salary $42,500 Grade Mid. Salary $50,500 Grade Max. Salary $57,500
85% 100% 115%
The $57,500 grade maximum salary is 35% above the $42,500 minimum.
Such 'broad-banded' structures (with salary range width of 35% or more) emphasise the performance of the individual within the grade, while narrow-banded structures place more emphasis on the job level and promotion. Structurally, both broad-banded and narrow-banded structures may provide the same outcome, however the controls required preventing grade drift in a narrow-banded structure may cause some inflexibility.
Research has shown the average band width to be 43% with a wide variation in responses. Other research has shown band width varying with job category: 15-20% at clerical levels, 25-40% for middle management, and 40-60% at senior levels.
Wider ranges for senior jobs acknowledge that at those levels individual merit assumes greater importance. The scope for improving performance in routine jobs is limited and there is no need to have wide bands, there outstanding performers can be catered for through promotions. Salary ranges between successive grades can overlap, but not be so broad as to overlap with a grade two removed.
Applying a range of plus or minus 15% (giving a salary range of 35% for a grade) to Table 1.3.1 gives:
1.3.2 Aligning Grades to Market Salaries.
A further factor to consider is how salary levels for grades should be aligned to market rates. The most appropriate reference point to align with the market is the midpoint of the grade salary range. The midpoint salary of a grade is the salary that represents the value to the organisation of any job in the grade where the performance of the jobholder is assessed as fully competent. The midpoint salary should not normally be below the median of the aggregated market rates for the jobs in the grade.
The organisation's salary policy will however determine the relationship between market rates and the midpoint of the grade salary ranges. For example, the organisation may adopt a high paying policy relative to the market, such as setting the grade midpoints at the third quartile or even the ninetieth percentile of the market. Such stance may however prove expensive and inherently inflationary. Many organisations aim for a median market position. (Refer further to Section 4.0 Using Surveys to set Salary Levels.)
General increases in salary levels following negotiations, cost of living increases, or market movements are dealt with by applying the increase to the grade midpoint, maximum and minimum salaries. For example, applying a 3% across-the-board cost of living increase to the structure shown in Figure 4 above gives:
Figure 4a. (Figure 4 after a 3% across-the-board increase.)
NRC salary surveys provide the relationship between Jobscore job points and salaries in various markets.
Historical and forecast salary movements in those markets are also given.
1.3.3 Summary of Grade Width Types.
The four main grade width types are:
1. Narrow-banded structures where the range of salaries applicable to each grade is small and individual grades do not overlap. These unduly restrict movements within ranges, except for routine jobs where performance level can only have limited impact on job outcomes.
2. Broad-banded, non-overlapping structures where the range of salaries for a grade is broad and individual grade do not overlaps. These produce a very coarse step from grade to grade so that borderline decisions on grading become over critical.
3. Finely graded structures where a large number of very wide grades exist with low differential between grades and considerable overlap between them. These can result in serious administrative problems arising from borderline disputes, grade drift, and the probability of staff receiving the same salary in a number of different grades.
4. Broad-banded overlapping structures which will typically have differentials of 15 to 20 percent between the midpoint salary of successive grades, with the band widths varying from 15 to 20 per cent, depending on level, and where salary ranges for adjacent grades overlap by up to 50 per cent. This is the most frequently adopted structure and it provides the best basis for a flexible approach to administering a structured salary regime without prejudicing the scope for controlling the system or creating too many administrative problems.
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1.4 Individual Job Ranges Structure.
Individual job range systems simply define a salary range for each job individually. The midpoint of the range is related to market rates and the upper and lower limits are expressed as plus or minus a percentage of the midpoint salary; typically, at senior levels plus or minus 20%. The advantage of individual job ranges is that they are more flexible, but they are more difficult to control and require more administrative time and effort than a grade structure. Individual job ranges are probably best for senior jobs or for rapidly growing organisations where a conventional grade structure would be too restrictive.
Figure 5. Individual Job Range Structure
2.0 Paying for Performance.
Implicit in a grade structure where there is a range of salaries associated with each grade, is the assumption that employees will move through the grade based on gaining additional competence. In simple jobs, this additional competence is frequently assumed to be based on length of service. But even here, research shows a limit to the increase in the level of contribution that can be made solely through additional time in the job. Such research shows that after seven years in a job performance has plateaued. If movement through a salary range is to be based on measures more objective than time in the job, then a performance appraisal system needs to be implemented. The subject of this paper is not performance appraisal systems, but it is necessary to introduce the topic briefly because it plays an important role in the sections to follow.
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2.1 Performance Bands and Compa-Ratio.
To regulate salary progression through a grade, the grade salary range (band width), minimum to maximum, is divided into sub-bands, or zones. Each zone represents a level of competence in performance of the job. To determine the zone into which an individual's salary falls, an objective, quantitatively defined, performance appraisal system should be used. As difficult and controversial as it may be to implement and use such a system, alternative subjective systems inevitably end up with some people being overpaid while others may not achieve proper recognition of their efforts. At best, this is an inefficient use of one of the organisation's scarcest resource, money. At worst it creates dissatisfaction among better employees where they see others less able or committed than themselves receiving equal or higher pay, or equal or higher pay rises. One frequently used model divides the salary range for a grade into five competency zones, each zone of equal width. Assuming a grade salary range equal to plus and minus 20% of the grade midpoint salary, the five competency zones can be represented as follows:
Zone performance level descriptor. Salary range for Zone
as a % of the Grade midpoint salary.
Marginal 80 - 87
Adequate 88 - 95
Competent 96 - 103
Superior 104 - 111
Distinguished 112 - 120
The organisation's performance appraisal system determines where the incumbent's performance stands in the range 80 to 120% of the Grade salary midpoint. If the rating is say Adequate at 95%, then the incumbent is paid 95% of the Grade midpoint salary. This percentage rating is also called the comparative ratio, or more commonly, the compa-ratio.
This approach has substantial elegance:
• It allows fairer and more equitable salary levels to be established.
• It allows across-the-board increases to the salary structure to be implement, such as a cost of living increase, without affecting the performance positions (compa-ratios) of individuals within their grade.
• It facilitates calculation of the impact of broad salary movements on the structure with and without the impact of reviewed compa-ratios, thereby facilitating forward budget calculations. Using these techniques in conjunction with various assumptions about salary movements, staff numbers, and performance assessments, longer-term planning and 'what if' analyses are possible to facilitate planning several years into the future. (Refer Section 6.0 Long Term Human Resources and Remuneration Planning.)
3.0 Job evaluation and Jobscore.
The aim of job evaluation is to provide a systematic and consistent approach to determining the relative worth of jobs. Job evaluation is a process whereby jobs are placed in a rank order according to the overall skill level required the jobholder. It also assesses the magnitude of differences between jobs. It therefore provides a basis for a fair and orderly grading structure.
Job evaluation does not directly determine level of pay for a job. That is a separate exercise, facilitated by salary surveys. Job evaluation is a technique of job analysis, assessment and comparison, and it is concerned with the skills, experience and responsibility required to carry out the job competently. It is not concerned with the total volume of work, the number of people required to do it, the scheduling of work, or the performance of the job holder. Only the job is evaluated, not the job incumbent: no characteristic of the incumbent is considered.
Job evaluation is also a tool for determining organisational structural efficiency.
In measuring a job, several aspects of the job are examined. Different job evaluation systems examine different aspects of a job; universally they examine as a minimum skill and responsibility. Some organisations develop in-house systems specific to their needs, others use systems developed by consultants or academics.
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3.1 Jobscore.
The Jobscore system is a universal system in that it is designed to measure jobs of all types at all levels, in organisations of all sizes, across all industry sectors. This design philosophy allows the relative size of jobs to be compared both within and across organisations. This in turn allows salary levels for jobs that are common to many industries to be compared. Such jobs include for example those in finance and accounting positions, administration, human resources management, and information services.
To achieve cross-organisation comparability of assessments, the Jobscore system also measures characteristics of the organisation that contains the job. These characteristics are: size as measured by total annual revenue (or budget for not-for-profit organisations); the industry sector in which it operates; the diversity of its products and services; and the diversity of its markets. These factors influence the complexity of managing the organisation, and hence the level of skill required by its employees.
To enable evaluation of a wide spectrum of job types a wide range of skill types are measured by the system. Not all skills represented in the Jobscore system are therefore applicable to every type of job. In these cases, the factors carry zero weight in the final assessment for the job.
Many job evaluation systems consist of progressive tables of figures corresponding to the levels present for each aspect of a job it measures. Consider by way of example a very simple system that examines just two aspects of a job, education level, and responsibility (however defined). The system may include four levels of education and three levels of responsibility with a score attached to each level within each factor, as follows:
Education Level
Level 1 Level 2 Level 3 Level 4
Higher School
Leaving Certificate Bachelor Degree Honours Degree Master's Degree
10 points 30 points 45 points 55 points
Responsibility
Level 1 Level 2 Level 3
Low
Responsibility Medium
Responsibility High
Responsibility
10 points 40 points 75 points
In the above simple system, if a job is assessed as requiring an honours degree and has medium responsibility then the assessment for the job would be 45 points for education level and 40 for responsibility, giving a total of 85 points.
A second job may require a bachelor's degree and have high responsibility, giving 105 points. This second job is deemed to be worth more to the organisation than the first, and performance of the incumbents aside, should be paid accordingly.
Some basic characteristics to observe about this simple system are that the points for each factor are added to arrive at the final score, and that the factors are assessed independently of each other. In other words there is nothing to prevent the evaluator select Level 1 for education in conjunction with Level 3 for responsibility, however unlikely that may be in reality.
Notice also that the points attributed to Level 1 Education are not the same as for Level 1 Responsibility. Overall, it appears as if the factor Responsibility is more heavily weighted than Education. This is a common design characteristic of job evaluation systems in that differing aspects of a job (factors) have differing weights towards the total job evaluation.
In Jobscore, the total evaluation for a job is made up of several 'building blocks'. There are also interactions between the blocks in that level selections in one 'block' dynamically interact with the weightings of other blocks. [This methodology is the intellectual property of the NRC.]
There are six building blocks making up a Jobscore evaluation:
• One block consisting of Education Level, Communication Skills, and Management and Specialist Skills.
• One Block representing the position's scope of management (functional breadth). It relates to the way the organisation is structured.
• A block representing the level of proficiency required to perform the job competently.
• A problem solving block.
• An accountability block.
• A block representing parameters of the organisation containing the job. It relates to the size and complexity of organisation's working environment.
The level selected for each of its constituent factors determines the size of each block. The blocks are then pieced together and their combined 'weight' constitutes the Jobscore evaluation. This can be illustrated as follows:
3.1a Jobscore Factors.
The aspects of a job and the characteristics of the organisation containing the job measured by Jobscore are as follows:
1. KNOWLEDGE AND SKILL
1.1 Education
1.2 Communication Skills
1.2.1 Written Communication Skill
1.2.2 Speaking and Listening Skills
1.3 Specialist and Management Skills
Specialist Skills
1.3.1 Numeracy Skill
1.3.2 Computer Usage Skill
1.3.3 Artistic Skill
1.3.4 Physical Skill
1.3.5 Care
1.3.6 Application of the Law and Legislative Procedures
Management Skills
1.3.7 Research, Analysis and Information Management Skills
1.3.8 Financial Resources Management Skill
1.3.8 Human Resource Management Skill
1.4 Functional Breadth
1.5 Proficiency
2. PROBLEM SOLVING
3. ACCOUNTABILITY
3.1 Accountability for Capital Assets
3.2 Accountability for Client Service
3.3 Impact
4. ORGANISATION PARAMETERS
4.1 Market-Product Diversity
4.1.1 Market Diversity
4.1.2 Product Diversity
4.2 Geographic Scope
4.3 Industry Sector and Revenue/Budget
Each factor is divided into several levels and each level carries a number of points. As factor levels are selected, the weighting of each factor in the overall evaluation is adjusted dynamically to properly reflect the characteristics of the job being assessed. The Jobscore computer program carries out this process.
The levels for the factor Proficiency are shown overleaf by way of example. This factor has ten levels and the Jobscore system gives a detailed description of each level.
Jobscore Factor: Proficiency
Proficiency is gained through on the job experience, related previous experience, and training courses additional to the basic formal education required by the job. Proficiency is also used to measure levels of creativity in the arts. Proficiency is the deemed overall skill level required to perform a job competently.
One view of proficiency is in purely technical terms, is the level Expert Practitioner where the position is the final authority within an organisation in some specialised field. Examples are Chief Legal Counsel, Chief Engineer, Manager Taxation, Company Secretary, and Employee Relations Manager.
Proficiency can also be considered in management terms where both technical proficiency in terms of vocation, trade or profession, and management proficiency to direct the application of organisation resources towards organisation objectives are required. Here the minimum level of proficiency would be Senior Practitioner.
Table 1.5 Proficiency
Level Description
1 Beginner, where duties provide training and development, e.g. Trainee positions.
2 In a vocation, trade or profession, the jobholder is required performs less difficult tasks, or gains experience working with more experienced or senior practitioners. In non-vocational, non-supervisory jobs, works on tasks of standard difficulty for the role.
3 In vocational, trade, or professional jobs, and in non-vocational supervisory jobs, works independently on tasks of standard difficulty for the role. For non-vocational, non-supervisory jobs, positions that require a well-experienced practitioner or one proficient in a specialised area.
4 Experienced Practitioner. In vocational jobs, positions that require an experienced practitioner (minimum 5 years post-qualification experience), and in non-vocational jobs, those that require a highly experienced practitioner (minimum 8 years job-related experience).
5 Senior Practitioner.
6 Advanced Practitioner.
7 Expert Practitioner.
8 Senior Expert.
9 Authority.
10 Leading Authority.
3.1b Conducting evaluations with Jobscore.
Job Evaluation Framework
Evaluation requires a good understanding of the job. A job should be evaluated within a framework of evaluations for other jobs in the organisation. Evaluations must also be in the context of similar jobs in the broader community.
To evaluate a job a good understanding of the job's role is required. This understanding is facilitated by a job description that details the level of general and specialist knowledge required to perform the job, the types and extent of problems that must be dealt with, and the responsibilities, or accountabilities of the job. The proportion of time spent on each activity should be stated to indicate the activity's relative level of importance in the job.
A detailed organisation chart showing where the job fits in the organisation hierarchy is a necessity. The chart should show as a minimum all jobs at the same level in the organisation as the position being evaluated, as well as major subordinate sub-functions to those positions. To properly assess a position it is frequently necessary, indeed desirable, to assess its superior positions and positions parallel to it in the organisation. This ensures that the evaluation is properly aligned within the framework of assessments that would apply to the organisation. Evaluating any job of significance independently of other jobs in the organisation can lead to a result that is 'out of sync' with the rest of the organisation.
If all jobs in an organisation are to be evaluated then one should start with the most senior job and work down the organisation, one organisation level at a time across the entire organisation. The most senior job's evaluation then stands as a standard relative to which other positions are assessed.
Evaluation should also take account of jobs in the broader community. Jobs and organisations do not exist in isolation and so it can be expected for example that an Accountant in one organisation should not be assessed markedly differently from one in another organisation, even considering differences in detail between the two.
Job Evaluation Committee
Job evaluation is best conducted by a small group. Members of the group or committee should have a broad to detailed understanding of all jobs in the organisation, and ideally be practised in job evaluation. Evaluations should be reached by consensus of the evaluators. Evaluations should be approved and signed off by the responsible individual or approval committee. Any job descriptions prepared by the job incumbent for use in the evaluation process should be reviewed and approved by the position's superiors. Job descriptions should include those aspects of a job that are measured in the evaluation process. It is important that the job description is a tangible description of the job, and not consist mainly of qualitative statements and desirable personal characteristics of an incumbent, or worse, a reflection of the current incumbent. Unspecific statements such as 'tertiary qualifications desirable' and 'good interpersonal skills required', which are open to wide interpretation, are near worthless for job evaluation purposes.
It is debatable whether a job's evaluation assessment should be shared with the jobholder. This decision must be made in the light of the organisation's culture. The decision must however be made very carefully. One view is that the assessments are purely a management tool that management rely on in formulating their decisions. Making assessments known generally can lead to dissatisfaction among employees who do not understand how the evaluations are arrived at, or at least not in detail. This is especially true if there are only small differences in the number of job points between certain jobs, which the incumbents see as equal. There is also a danger that job points can become 'badges of rank'. This is contentious issue but on balance we suggest consideration be given to treating job evaluation as a confidential management tool.
It is worthwhile keeping a record of the decisions made by the job evaluation committee as to the reasons it arrived at particular evaluations, especially in cases where the decision was open to debate. This will be useful when reviewing the job's evaluation in the future, and it helps ensure consistent thinking when assessing other jobs.
4. Using Surveys to Set Salary Levels.
Once a grade structure has been established it is necessary to establish a salary level for each grade. These salary levels would normally be obtained from salary surveys.
The mid-point salary level in each grade in a salary structure is taken as representative of all the jobs in the grade, and is the rate paid to a competent performer in the grade. The market needs to be examined to obtain salary levels appropriate to the jobs in the grade. Information about market salaries can be obtained from industry associations, peers in the industry, Labour organisations and professional associations, Bureaux of Statistics, education institutions (regarding salary levels for graduates), recruitment firms, newspaper job ads, the internet, and consulting firms. The quality of information varies markedly depending on the source. The information presented may be based on matches to standard job descriptions/job titles, or on a job-evaluated basis. In the latter, all jobs whose data is included in the survey are evaluated using a common job evaluation system. This allows a quantitative relationship between job size and salary level to be established.
The data may focus on specific job groups such as those in a particular job family i.e. engineers, or on an industry, or in a geographic region.
If no suitable source of data is available, the organisation can conduct a customised survey specific to its needs. These take time. There is the need to define the jobs to be surveyed, canvass survey participants, collect and verify the data, and analyse and distribute the results to survey participants.
The NRC conducts a number of surveys, both standard, regular productions and customised once-off surveys. Some NRC surveys are general all-industries surveys, and others are specific to a particular industry. Both job description match and job evaluated surveys are conducted.
Based on its job evaluated surveys the NRC publishes sets of figures that relate job size, as measured by Jobscore, to market salaries. These figures can be readily translated into grade mid-point salaries for any Jobscore evaluated grade structure. A range of figures are published at various levels in the market (various percentile and quartile positions) so that an organisation can set their pay structure at their desired position in the market.
For example, consider an organisation that wishes to place its salary structure at the median of a general all-industries market. A single equation provided by the NRC is used to set all grade mid-point salaries. An example of such a formula is expressed as $11,981 plus $154.76 per job point.
If the midpoint job evaluation for a particular grade in the organisation is 384 points then using this formula, the corresponding grade midpoint salary is:
$11,981, plus $154.76 multiplied by 337, which equals $64,135.
[This is the model used in Figure 4, Section 1.3.1 (refer Grade 4 in that Figure).]
Using this formula, the mid-point salary for each grade in the structure can quickly be determined. The maximum and minimum salary for each grade is then calculated from the midpoint as determined by the band width for the grade.
5. Budgeting for Remuneration.
In Section 1.2.4b Alignment with Market Rates, an across-the-board increase of 3% was applied to a salary structure to arrive at the corresponding revised salary range for each grade. Such an adjustment, together with the number of employees in each grade, and their compa-ratio (position in the salary range) allows us to readily calculate the cost of such adjustments. In the simplest case, where there is no movement in individual employee's compa-ratio and the movement is uniform for all grades (such as in the 3% movement example) the overall increase in the payroll budget is simply 3% of the total current payroll.
The second scenario is where the comp-ratios (performance ratings) are to remain constant but the change in salary level for each grade differs. Here the calculation needs to be made on a grade by grade basis, to obtain the total increase in payroll.
More interesting is the case where changes in compa-ratio due to changed performance appraisal levels need to be implemented. The easiest way to assess the change in payroll resulting from the combined effect of changed compa-ratios, with or without changed grade salary levels is with a spreadsheet. If the organisation has a very large number of jobs then a simple computer program is preferable.
Where there is no change to grade salary levels the increase for each employee is calculated as:
Grade mid-point salary multiplied by new compa-ratio, minus current salary. [Here current salary is equal to grade midpoint multiplied by current compa-ratio.]
Take for example the grade salary levels shown in Figure 4 (Section 1.3.1). If a particular employee is in Grade 3 in that structure (where the midpoint salary for the grade is $53,700) and their compa-ratio is 93% then their current salary is 93% of $53,700, or $49,940. If the employee's performance is reassessed as 97% of the fully competent position (100%), then their salary should be increased to 97% of $53,700, or $52,090. This is an increase of $2,150.
In this manner, the increase for each employee is calculated and the total for all employees gives the resulting total payroll increase.
Suppose now that an increase in grade salary ranges is to be implemented in conjunction with performance assessment adjustments. Here, the new salary level for employees must be calculated based on their new compa-ratio in combination with the new mid-point salary for their job grade. Consider the above example again, but assume the mid-point of the grade moves by 3% from $53,700 to $55,310. In this case, the employee's new salary will be 97% of $55,310, or $53,650, giving an overall increase of $3,710.
Increases for all employees are calculated and added to arrive at the total payroll increase.
If the resulting increase in cost due to the combined effect of performance appraisal in combination with grade salary level movements exceeds the allocated budget for salary increases, then the grade salary level movement needs to be adjusted. In such circumstance, compa-ratios should not be amended to reduce the overall cost as that is merely a corruption the performance appraisal system and denies recognition of employees' performance.
6. Long Term HR and Remuneration Planning.
The calculations described in the previous Section are suitable for current term budgeting. However longer range estimates need to consider a number of additional factors, including for example:
• Changes in the employee mix such as higher proportions of technical staff or outsourcing of activities.
• Employee turnover for the various classifications of staff.
• Anticipated higher or lower market demand for various categories of staff.
• Impact of training programs on employee performance and hence compa-ratios.
• Expected impact of the economic environment on wage levels in the organisation's employment market.
• The changing cost of providing certain types of benefits, such as a car.
• Expected impact of government legislation, such as changes to the Super Guarantee Charge, or FBT.
• Expected impact of labour union demands, for example working hours, annual leave entitlements, provision of special leave such as maternity/paternity leave.
• Levels of absenteeism.
• Expected changes in the organisation's structure.
• Expected impact on employee numbers and job levels due to realisation of the organisation's business plans.
Employees are a key resource in which the organisation invests and management has a duty to stakeholders in the organisation to ensure that such resource is utilised to maximum effect. Payroll makes up forty per cent of the total operating cost of many organisations. In that regard, it is a significant investment requiring a commensurate level of careful analysis and planning. Human resources planning is therefore an important area in which Human Resources professions can contribute to the effective management of this essential organisational resource.
Long range human resources planning includes consideration of the factors listed above as they influence the cost of employment and employee numbers. Training programs, succession planning, recruitment methods, incentive schemes and such are further components. Like any other significant aspect of managing an organisation, analysing the array of human resource issues to arrive at a conclusion is a complex matter. Solutions can frequently only be arrived at in probabilistic terms. In other words, the assessments of expected outcomes have to be based on the best-informed assumptions one can make, in conjunction with the likelihood of those assumptions eventuating.
Fortunately, models of the various scenarios can be built using spreadsheets. Overly complex models are probably unwarranted because of the looseness of assumptions that need to be made about the expected outcomes for the various factors taken into account. The outcomes of these models in the remuneration context are the numbers and levels of staff required and their total cost of employment.
A major area where Jobscore is used in longer term HR planning is to examine the impact of organisation changes on the size of jobs in the future organisation. Revised job sizes in conjunction with the required changes to numbers of employees in various grades due to restructuring, divestment, acquisition, or growth gives an indication of the corresponding expected total salary bill. This analysis by the HR professional supports other business assessments examining the viability of or the best path forward regarding organisation changes or plans.
Henry Warren
Melbourne
1.2 Determining the number of grades in a structure.
Whichever structure is chosen, single graded, career family, or job family, the number of grades in each 'spine' of the structure needs to be determined. At one end of the scale, each individual job can constitute its own grade, and this is common in pure-job evaluated salary administration systems. The other, unlikely extreme is for all jobs top be in a single grade. In a pure-job evaluated salary system, each individual position's job evaluation points determine its salary (and range). [This is the individual job ranges structure. See Section 1.4 following for a more detailed discussion.] To answer the question 'how many grades are required in a structure', one first needs to address the question of how to differentiate between jobs so that one can determine whether they do indeed fall into different groups. The process of differentiating jobs requires that they be ranked.
Three methods for ranking jobs are:
• Simple Ranking
• Classification
• Point Method
Simple ranking is neither qualitative nor quantitative. Classification methods allow qualitative differentiation and the Point method allows quantitative differentiation.
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1.2.1 Ranking.
This method relies on job descriptions or job titles for the positions to be ranked. Each job is considered as a whole and placed in a 'felt fair' rank order to produce a league table. It is considered the simplest method since there is no attempt to break down or analyse the job in any way. It is therefore easy to understand and implement, particularly with a small number of jobs. Two basic types of ranking can be used: Simple or Paired Comparison.
1.2.1a Simple Ranking.
This method is one of the easiest to administer. Jobs are compared to each other based on the overall worth of the job to the organisation. The 'worth' of a job is usually based on judgements of such as aspects of the job as skill, effort (physical and mental), responsibility (supervisory and fiscal), working conditions, and any others that the assessors deem relevant. Advantages
• Simple.
• Very effective when there are a relatively few jobs to be evaluated (less than 30).
Disadvantages
• Difficult to administer as the number of jobs increases.
• Rank judgements are subjective.
• Since there is no standard used for comparison, new jobs would have to be compared with the existing jobs to determine its appropriate rank. In essence, the ranking process would have to be repeated each time that a new job is added to the organisation.
1.2.1b Paired Comparison Ranking.
This is also a relatively simple technique. Each job is compared as a whole with each other job in turn. A score (0, 1 or 2) is awarded according to whether its overall value is judged to be less than, equal to, or more than the job to which it is being compared. The scores awarded for each job are then totalled and a rank order produced. This method has all the advantages of job ranking and is slightly more systematic. However, it is best limited to organisations with a maximum of 30 jobs in a particular job population and, like simple ranking, it does not involve any analysis of jobs nor, importantly, indicate the extent of any difference between them.
For example, consider the four jobs: labourer, accountant, market analyst, and chief executive.
Labourer Accountant Market Analyst Chief Executive Row Total Rank
(1 is high)
Labourer - 0 0 0 0 4
Accountant 2 - 1 0 3 2
Market Analyst 2 1 - 0 3 2
Chief Executive 2 2 2 - 6 1
The row totals give the jobs' relative ranking (but not a measure of their value).
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1.2.2 Classification.
This is also a 'whole job' assessment method. In job classification, the number of grades is decided first and detailed grade definitions produced. (Subsequent examination, after ranking has taken place, may result in a change to the initial number of grades.) This method may be used where groups of jobs can be clearly defined, such as with clerical and administrative roles.
Because of differences in duties and skills, grades are developed mainly along occupational lines. The grade definitions do not attempt to describe every work assignment of each position in the occupation covered, rather they identify and describe the main characteristics of the occupation that are significant for distinguishing different levels of work value. They define these characteristics in such a way as to provide a basis for assigning the appropriate grade level to all positions in the occupation to which the standards apply. Well-defined grades/categories attempt to define the grades/categories with no overlap to avoid problems when assigning jobs to the grades. Representative (benchmark) jobs are assessed to validate the definitions. Other non-benchmark jobs are then slotted into the structure based on the grade definitions.
This method is easy to understand and allows for some consideration of skill content. There may however be a temptation to grade jobs according to how they have been paid or viewed historically rather than according to their skill requirements, also aspects of individual jobs may straddle job definitions.
Advantages
• Simple.
• The grade/category structure exists independently of the jobs. Therefore, new jobs can be classified more easily than the Ranking method.
Disadvantages
• Classification judgements are subjective.
• Some jobs may appear to fit within more than one grade/category.
1.2.3 Point Method.
The point method is an analytical technique that breaks down each job into a number of factors, for example: knowledge, problem solving, and accountability. These factors are frequently broken down further into sub-factors. For example, knowledge can be divided into, education, interpersonal skills and resource management skills. These sub-factors are further divided into degrees or levels. Points are awarded to a job based on the level of skill required at each factor. The combined points decide a job's place in the ranking order. A points rating scheme has the following advantages:
• It provides a ranking of jobs that also provides a quantitative measure of the differences between jobs.
• It is generally less subjective than non-analytical methods.
The disadvantages of points rating are that it can be time consuming to introduce and complex and costly to undertake and maintain. It can also imply a level of precision that is not justified.
Jobscore is a Point Method.
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1.2.3a Tailor-made or 'off the shelf' job evaluation systems.
A prime consideration in deciding which analytical job evaluation scheme to select lies in the choice of factors and weightings, i.e. which aspects of a job are measured, and what overall weighting is given to each aspect.
The benefit of proprietary, off the shelf systems is that they normally have been well tested. Many are linked to market salary information. There is also a saving in time as opposed to developing an in-house system.
The benefit of a tailor-made scheme is that the factors and definitions can be aligned specifically to the jobs to be evaluated. However, developing a job evaluation system is a highly specialised activity and the organisation may not have the skills necessary to produce a sufficiently robust system. If an organisation were to develop an in-house system then quite likely external, expert assistance would be required. Altogether this can work out to be a very expensive option.
There is also the option of modifying a proprietary system to better suit a particular organisation or industry. As a minimum, factor level descriptions can be modified to reflect the organisation's job types.
Jobscore factor level descriptions can be customised, but not its underlying structure.
Amending its underlying structure could affect its universal applicability.
1.3 Determining the Grade Boundaries.
By using job evaluation to assess each job, or a set of benchmark jobs representative of all jobs, the jobs can be arrayed in ascending order of their job evaluation or points. The next step is to divide the jobs into groups where each group consists of positions with a similar number of job points. These groups form the basis on which individual grades in the structure are built. There is no magic formula for determining where the boundaries between groups should fall, and is possibly best done by inspection to see where natural breaks between groups of jobs appear. Where such significant gaps do not exist, the jobs with common features as indicated by the job evaluation factors are grouped so that a clear distinction can be made between the characteristics of the jobs in different groups. It should be possible to demonstrate that the jobs grouped into one grade resemble each other more than they resemble jobs placed in adjacent grades. The width of each group or grade in terms of job evaluation points should represent a significant step in demand as indicated by the job evaluation scheme. This process can yield the final number of grades required for the structure. Further considerations include:
• The range and types of roles to be covered by the structure. (There may be jobs in the organisations that are genuinely outside of the structure.)
• The range of job sizes to be accommodated in the structure. (How far down in the organisation should the structure apply, and how far up?)
• The number of levels in the organisational hierarchy. (The more levels inherent in the organisation, the more levels are likely to be required in the grade structure, if only because of the size and complexity of the organisation. Grades should neither consciously nor unconsciously be aligned with organisation level.)
• The greater the number of grades the smaller their width and vice versa. (This is associated with considerations on what is regarded as a desirable range of salaries for grades, taking into account the need for scope in salary progression and the size of salary increments).
• The problem of 'grade drift' (unjustified upgrading in response to staff or line-manager pressure, or because job evaluation has been applied in a lax manner). This can be exacerbated if there are too many narrow grades.
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1.3a How many Grades?
Typically, conventional graded structures tend to have between eight and twelve grades. Research covering a sample of 2,000 organisations in the United Kingdom found an average of ten grades covering managerial, executive and profession staff. The research also found that the number of grades was not significantly affected by the size of the organisation: Although one could reasonable assume variation between the two extremes of organisation size. Larger organisations may also tend to adopt different structures for different employee classes, e.g. a separate structure for senior management, differing structures between technical and non-technical employees, etc. Larger organisations may also operate in more than one industry where norms differ markedly, e.g. manufacturing and retail, or finance and travel.
Other research shows a 15 to 25 per cent differential between grades (between the midpoint of one grade to the next). Fifteen percent has been shown to be large enough to provide an adequate increase between grades, and sufficient to avoid excessive argument about marginal cases. It is also of such size as to allow adequate flexibility to accommodate a wide range of jobs.
If the difference between grades is too small, say less than 10 per cent, many jobs would become borderline and frequent reassessments would be needed to ensure they were still in the correct grade. Job evaluation is not sufficiently discriminating a tool (nor is any other) to identify very fine differences in marginal cases. In these cases, jobs could be upgraded to the next grade without adequate increases in evaluation. This tendency to 'grade drift' erodes the structure's validity.
If differentials between grades are too wide, say more than 25 per cent, it would be difficult to justify a move to a higher grade for most jobs, even though some upward movement may be appropriate. The only area where steps as wide as 25 per cent may be applicable is at the very highest levels in an organisation, say between the most senior position and the second level, and between the second and third levels.
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1.3.1 Determining the Grade Salary Range (Band Width).
Each grade has a width in terms of catering for a range of job sizes (grade width), and a corresponding range of salaries referred to as the grade's salary band width.
Considerations for determining the number and width of grades are discussed in Section 1.3 above. The width of a grade is defined in terms of the span of job evaluation points it covers, for example:
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5
154 - 191 192 - 239 240 - 299 300 - 374 375 - 486
Job Points Ranges
Each grades can be the same width, however it is more likely that individual grades are of differing widths, become wider as the grade increases. In the above example, each grade is successively 25% wider (the midpoint job evaluation of each grade is 25 per cent higher than its predecessor).
While the width of the grade specifies which jobs would fall into the grade because of their job evaluation points, width does not specify explicitly what salary level or range applies to the grade. The single salary level for each grade, or where applicable the salary range, adds a second dimension to the model.
Each grade must have a salary level associated with it. This salary becomes the underlying salary for all jobs in the grade. Such salaries are determined from market surveys, and the translation of salary levels from surveys into the grade structure is addressed in Section 1.3.2.
It may be that there is a single salary applicable to all positions and all employees in the grade (and this can be true in non pay-for-performance environments). In this case the above diagram may be presented as follows, where a single salary level for each grade is shown:
Table 1.3.1
Grade Salary Level
($) p.a. 38,700 45,300 53,700 64,100 77,200
Grade 1 2 3 4 5
Points Range 154 - 191 192 - 239 240 - 299 300 - 374 375 - 486
Many organisations would have a range of salaries applicable to a grade to reward growth and advancement of employees in the grade. Hence, for each grade, there would be a range of salaries extending above and below the 'mid-point' or single rate salary for the grade. How wide should this range be is the next question.
The wider the grade, i.e. the bigger the range of job sizes it contains, the bigger the spread of salaries that can be justified. However, the underlying purpose of a range of salaries for a grade is to enable an individual's pay within a grade to move in relation to the their performance in the job. [Necessarily therefore, an adequate performance appraisal mechanism is also needed (see Section 2.0 for a brief introduction to paying for performance).]
Reasonably wide ranges, at least 15 per cent on either side of the mid-point salary gives an adequate spread (35% plus) in salaries for the grade (see diagram following), thereby also providing some flexibility in fitting jobs into a grade where their evaluations or market rates differ slightly.
Grade Min. Salary $42,500 Grade Mid. Salary $50,500 Grade Max. Salary $57,500
85% 100% 115%
The $57,500 grade maximum salary is 35% above the $42,500 minimum.
Such 'broad-banded' structures (with salary range width of 35% or more) emphasise the performance of the individual within the grade, while narrow-banded structures place more emphasis on the job level and promotion. Structurally, both broad-banded and narrow-banded structures may provide the same outcome, however the controls required preventing grade drift in a narrow-banded structure may cause some inflexibility.
Research has shown the average band width to be 43% with a wide variation in responses. Other research has shown band width varying with job category: 15-20% at clerical levels, 25-40% for middle management, and 40-60% at senior levels.
Wider ranges for senior jobs acknowledge that at those levels individual merit assumes greater importance. The scope for improving performance in routine jobs is limited and there is no need to have wide bands, there outstanding performers can be catered for through promotions. Salary ranges between successive grades can overlap, but not be so broad as to overlap with a grade two removed.
Applying a range of plus or minus 15% (giving a salary range of 35% for a grade) to Table 1.3.1 gives:
1.3.2 Aligning Grades to Market Salaries.
A further factor to consider is how salary levels for grades should be aligned to market rates. The most appropriate reference point to align with the market is the midpoint of the grade salary range. The midpoint salary of a grade is the salary that represents the value to the organisation of any job in the grade where the performance of the jobholder is assessed as fully competent. The midpoint salary should not normally be below the median of the aggregated market rates for the jobs in the grade.
The organisation's salary policy will however determine the relationship between market rates and the midpoint of the grade salary ranges. For example, the organisation may adopt a high paying policy relative to the market, such as setting the grade midpoints at the third quartile or even the ninetieth percentile of the market. Such stance may however prove expensive and inherently inflationary. Many organisations aim for a median market position. (Refer further to Section 4.0 Using Surveys to set Salary Levels.)
General increases in salary levels following negotiations, cost of living increases, or market movements are dealt with by applying the increase to the grade midpoint, maximum and minimum salaries. For example, applying a 3% across-the-board cost of living increase to the structure shown in Figure 4 above gives:
Figure 4a. (Figure 4 after a 3% across-the-board increase.)
NRC salary surveys provide the relationship between Jobscore job points and salaries in various markets.
Historical and forecast salary movements in those markets are also given.
1.3.3 Summary of Grade Width Types.
The four main grade width types are:
1. Narrow-banded structures where the range of salaries applicable to each grade is small and individual grades do not overlap. These unduly restrict movements within ranges, except for routine jobs where performance level can only have limited impact on job outcomes.
2. Broad-banded, non-overlapping structures where the range of salaries for a grade is broad and individual grade do not overlaps. These produce a very coarse step from grade to grade so that borderline decisions on grading become over critical.
3. Finely graded structures where a large number of very wide grades exist with low differential between grades and considerable overlap between them. These can result in serious administrative problems arising from borderline disputes, grade drift, and the probability of staff receiving the same salary in a number of different grades.
4. Broad-banded overlapping structures which will typically have differentials of 15 to 20 percent between the midpoint salary of successive grades, with the band widths varying from 15 to 20 per cent, depending on level, and where salary ranges for adjacent grades overlap by up to 50 per cent. This is the most frequently adopted structure and it provides the best basis for a flexible approach to administering a structured salary regime without prejudicing the scope for controlling the system or creating too many administrative problems.
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1.4 Individual Job Ranges Structure.
Individual job range systems simply define a salary range for each job individually. The midpoint of the range is related to market rates and the upper and lower limits are expressed as plus or minus a percentage of the midpoint salary; typically, at senior levels plus or minus 20%. The advantage of individual job ranges is that they are more flexible, but they are more difficult to control and require more administrative time and effort than a grade structure. Individual job ranges are probably best for senior jobs or for rapidly growing organisations where a conventional grade structure would be too restrictive.
Figure 5. Individual Job Range Structure
2.0 Paying for Performance.
Implicit in a grade structure where there is a range of salaries associated with each grade, is the assumption that employees will move through the grade based on gaining additional competence. In simple jobs, this additional competence is frequently assumed to be based on length of service. But even here, research shows a limit to the increase in the level of contribution that can be made solely through additional time in the job. Such research shows that after seven years in a job performance has plateaued. If movement through a salary range is to be based on measures more objective than time in the job, then a performance appraisal system needs to be implemented. The subject of this paper is not performance appraisal systems, but it is necessary to introduce the topic briefly because it plays an important role in the sections to follow.
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2.1 Performance Bands and Compa-Ratio.
To regulate salary progression through a grade, the grade salary range (band width), minimum to maximum, is divided into sub-bands, or zones. Each zone represents a level of competence in performance of the job. To determine the zone into which an individual's salary falls, an objective, quantitatively defined, performance appraisal system should be used. As difficult and controversial as it may be to implement and use such a system, alternative subjective systems inevitably end up with some people being overpaid while others may not achieve proper recognition of their efforts. At best, this is an inefficient use of one of the organisation's scarcest resource, money. At worst it creates dissatisfaction among better employees where they see others less able or committed than themselves receiving equal or higher pay, or equal or higher pay rises. One frequently used model divides the salary range for a grade into five competency zones, each zone of equal width. Assuming a grade salary range equal to plus and minus 20% of the grade midpoint salary, the five competency zones can be represented as follows:
Zone performance level descriptor. Salary range for Zone
as a % of the Grade midpoint salary.
Marginal 80 - 87
Adequate 88 - 95
Competent 96 - 103
Superior 104 - 111
Distinguished 112 - 120
The organisation's performance appraisal system determines where the incumbent's performance stands in the range 80 to 120% of the Grade salary midpoint. If the rating is say Adequate at 95%, then the incumbent is paid 95% of the Grade midpoint salary. This percentage rating is also called the comparative ratio, or more commonly, the compa-ratio.
This approach has substantial elegance:
• It allows fairer and more equitable salary levels to be established.
• It allows across-the-board increases to the salary structure to be implement, such as a cost of living increase, without affecting the performance positions (compa-ratios) of individuals within their grade.
• It facilitates calculation of the impact of broad salary movements on the structure with and without the impact of reviewed compa-ratios, thereby facilitating forward budget calculations. Using these techniques in conjunction with various assumptions about salary movements, staff numbers, and performance assessments, longer-term planning and 'what if' analyses are possible to facilitate planning several years into the future. (Refer Section 6.0 Long Term Human Resources and Remuneration Planning.)
3.0 Job evaluation and Jobscore.
The aim of job evaluation is to provide a systematic and consistent approach to determining the relative worth of jobs. Job evaluation is a process whereby jobs are placed in a rank order according to the overall skill level required the jobholder. It also assesses the magnitude of differences between jobs. It therefore provides a basis for a fair and orderly grading structure.
Job evaluation does not directly determine level of pay for a job. That is a separate exercise, facilitated by salary surveys. Job evaluation is a technique of job analysis, assessment and comparison, and it is concerned with the skills, experience and responsibility required to carry out the job competently. It is not concerned with the total volume of work, the number of people required to do it, the scheduling of work, or the performance of the job holder. Only the job is evaluated, not the job incumbent: no characteristic of the incumbent is considered.
Job evaluation is also a tool for determining organisational structural efficiency.
In measuring a job, several aspects of the job are examined. Different job evaluation systems examine different aspects of a job; universally they examine as a minimum skill and responsibility. Some organisations develop in-house systems specific to their needs, others use systems developed by consultants or academics.
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3.1 Jobscore.
The Jobscore system is a universal system in that it is designed to measure jobs of all types at all levels, in organisations of all sizes, across all industry sectors. This design philosophy allows the relative size of jobs to be compared both within and across organisations. This in turn allows salary levels for jobs that are common to many industries to be compared. Such jobs include for example those in finance and accounting positions, administration, human resources management, and information services.
To achieve cross-organisation comparability of assessments, the Jobscore system also measures characteristics of the organisation that contains the job. These characteristics are: size as measured by total annual revenue (or budget for not-for-profit organisations); the industry sector in which it operates; the diversity of its products and services; and the diversity of its markets. These factors influence the complexity of managing the organisation, and hence the level of skill required by its employees.
To enable evaluation of a wide spectrum of job types a wide range of skill types are measured by the system. Not all skills represented in the Jobscore system are therefore applicable to every type of job. In these cases, the factors carry zero weight in the final assessment for the job.
Many job evaluation systems consist of progressive tables of figures corresponding to the levels present for each aspect of a job it measures. Consider by way of example a very simple system that examines just two aspects of a job, education level, and responsibility (however defined). The system may include four levels of education and three levels of responsibility with a score attached to each level within each factor, as follows:
Education Level
Level 1 Level 2 Level 3 Level 4
Higher School
Leaving Certificate Bachelor Degree Honours Degree Master's Degree
10 points 30 points 45 points 55 points
Responsibility
Level 1 Level 2 Level 3
Low
Responsibility Medium
Responsibility High
Responsibility
10 points 40 points 75 points
In the above simple system, if a job is assessed as requiring an honours degree and has medium responsibility then the assessment for the job would be 45 points for education level and 40 for responsibility, giving a total of 85 points.
A second job may require a bachelor's degree and have high responsibility, giving 105 points. This second job is deemed to be worth more to the organisation than the first, and performance of the incumbents aside, should be paid accordingly.
Some basic characteristics to observe about this simple system are that the points for each factor are added to arrive at the final score, and that the factors are assessed independently of each other. In other words there is nothing to prevent the evaluator select Level 1 for education in conjunction with Level 3 for responsibility, however unlikely that may be in reality.
Notice also that the points attributed to Level 1 Education are not the same as for Level 1 Responsibility. Overall, it appears as if the factor Responsibility is more heavily weighted than Education. This is a common design characteristic of job evaluation systems in that differing aspects of a job (factors) have differing weights towards the total job evaluation.
In Jobscore, the total evaluation for a job is made up of several 'building blocks'. There are also interactions between the blocks in that level selections in one 'block' dynamically interact with the weightings of other blocks. [This methodology is the intellectual property of the NRC.]
There are six building blocks making up a Jobscore evaluation:
• One block consisting of Education Level, Communication Skills, and Management and Specialist Skills.
• One Block representing the position's scope of management (functional breadth). It relates to the way the organisation is structured.
• A block representing the level of proficiency required to perform the job competently.
• A problem solving block.
• An accountability block.
• A block representing parameters of the organisation containing the job. It relates to the size and complexity of organisation's working environment.
The level selected for each of its constituent factors determines the size of each block. The blocks are then pieced together and their combined 'weight' constitutes the Jobscore evaluation. This can be illustrated as follows:
3.1a Jobscore Factors.
The aspects of a job and the characteristics of the organisation containing the job measured by Jobscore are as follows:
1. KNOWLEDGE AND SKILL
1.1 Education
1.2 Communication Skills
1.2.1 Written Communication Skill
1.2.2 Speaking and Listening Skills
1.3 Specialist and Management Skills
Specialist Skills
1.3.1 Numeracy Skill
1.3.2 Computer Usage Skill
1.3.3 Artistic Skill
1.3.4 Physical Skill
1.3.5 Care
1.3.6 Application of the Law and Legislative Procedures
Management Skills
1.3.7 Research, Analysis and Information Management Skills
1.3.8 Financial Resources Management Skill
1.3.8 Human Resource Management Skill
1.4 Functional Breadth
1.5 Proficiency
2. PROBLEM SOLVING
3. ACCOUNTABILITY
3.1 Accountability for Capital Assets
3.2 Accountability for Client Service
3.3 Impact
4. ORGANISATION PARAMETERS
4.1 Market-Product Diversity
4.1.1 Market Diversity
4.1.2 Product Diversity
4.2 Geographic Scope
4.3 Industry Sector and Revenue/Budget
Each factor is divided into several levels and each level carries a number of points. As factor levels are selected, the weighting of each factor in the overall evaluation is adjusted dynamically to properly reflect the characteristics of the job being assessed. The Jobscore computer program carries out this process.
The levels for the factor Proficiency are shown overleaf by way of example. This factor has ten levels and the Jobscore system gives a detailed description of each level.
Jobscore Factor: Proficiency
Proficiency is gained through on the job experience, related previous experience, and training courses additional to the basic formal education required by the job. Proficiency is also used to measure levels of creativity in the arts. Proficiency is the deemed overall skill level required to perform a job competently.
One view of proficiency is in purely technical terms, is the level Expert Practitioner where the position is the final authority within an organisation in some specialised field. Examples are Chief Legal Counsel, Chief Engineer, Manager Taxation, Company Secretary, and Employee Relations Manager.
Proficiency can also be considered in management terms where both technical proficiency in terms of vocation, trade or profession, and management proficiency to direct the application of organisation resources towards organisation objectives are required. Here the minimum level of proficiency would be Senior Practitioner.
Table 1.5 Proficiency
Level Description
1 Beginner, where duties provide training and development, e.g. Trainee positions.
2 In a vocation, trade or profession, the jobholder is required performs less difficult tasks, or gains experience working with more experienced or senior practitioners. In non-vocational, non-supervisory jobs, works on tasks of standard difficulty for the role.
3 In vocational, trade, or professional jobs, and in non-vocational supervisory jobs, works independently on tasks of standard difficulty for the role. For non-vocational, non-supervisory jobs, positions that require a well-experienced practitioner or one proficient in a specialised area.
4 Experienced Practitioner. In vocational jobs, positions that require an experienced practitioner (minimum 5 years post-qualification experience), and in non-vocational jobs, those that require a highly experienced practitioner (minimum 8 years job-related experience).
5 Senior Practitioner.
6 Advanced Practitioner.
7 Expert Practitioner.
8 Senior Expert.
9 Authority.
10 Leading Authority.
3.1b Conducting evaluations with Jobscore.
Job Evaluation Framework
Evaluation requires a good understanding of the job. A job should be evaluated within a framework of evaluations for other jobs in the organisation. Evaluations must also be in the context of similar jobs in the broader community.
To evaluate a job a good understanding of the job's role is required. This understanding is facilitated by a job description that details the level of general and specialist knowledge required to perform the job, the types and extent of problems that must be dealt with, and the responsibilities, or accountabilities of the job. The proportion of time spent on each activity should be stated to indicate the activity's relative level of importance in the job.
A detailed organisation chart showing where the job fits in the organisation hierarchy is a necessity. The chart should show as a minimum all jobs at the same level in the organisation as the position being evaluated, as well as major subordinate sub-functions to those positions. To properly assess a position it is frequently necessary, indeed desirable, to assess its superior positions and positions parallel to it in the organisation. This ensures that the evaluation is properly aligned within the framework of assessments that would apply to the organisation. Evaluating any job of significance independently of other jobs in the organisation can lead to a result that is 'out of sync' with the rest of the organisation.
If all jobs in an organisation are to be evaluated then one should start with the most senior job and work down the organisation, one organisation level at a time across the entire organisation. The most senior job's evaluation then stands as a standard relative to which other positions are assessed.
Evaluation should also take account of jobs in the broader community. Jobs and organisations do not exist in isolation and so it can be expected for example that an Accountant in one organisation should not be assessed markedly differently from one in another organisation, even considering differences in detail between the two.
Job Evaluation Committee
Job evaluation is best conducted by a small group. Members of the group or committee should have a broad to detailed understanding of all jobs in the organisation, and ideally be practised in job evaluation. Evaluations should be reached by consensus of the evaluators. Evaluations should be approved and signed off by the responsible individual or approval committee. Any job descriptions prepared by the job incumbent for use in the evaluation process should be reviewed and approved by the position's superiors. Job descriptions should include those aspects of a job that are measured in the evaluation process. It is important that the job description is a tangible description of the job, and not consist mainly of qualitative statements and desirable personal characteristics of an incumbent, or worse, a reflection of the current incumbent. Unspecific statements such as 'tertiary qualifications desirable' and 'good interpersonal skills required', which are open to wide interpretation, are near worthless for job evaluation purposes.
It is debatable whether a job's evaluation assessment should be shared with the jobholder. This decision must be made in the light of the organisation's culture. The decision must however be made very carefully. One view is that the assessments are purely a management tool that management rely on in formulating their decisions. Making assessments known generally can lead to dissatisfaction among employees who do not understand how the evaluations are arrived at, or at least not in detail. This is especially true if there are only small differences in the number of job points between certain jobs, which the incumbents see as equal. There is also a danger that job points can become 'badges of rank'. This is contentious issue but on balance we suggest consideration be given to treating job evaluation as a confidential management tool.
It is worthwhile keeping a record of the decisions made by the job evaluation committee as to the reasons it arrived at particular evaluations, especially in cases where the decision was open to debate. This will be useful when reviewing the job's evaluation in the future, and it helps ensure consistent thinking when assessing other jobs.
4. Using Surveys to Set Salary Levels.
Once a grade structure has been established it is necessary to establish a salary level for each grade. These salary levels would normally be obtained from salary surveys.
The mid-point salary level in each grade in a salary structure is taken as representative of all the jobs in the grade, and is the rate paid to a competent performer in the grade. The market needs to be examined to obtain salary levels appropriate to the jobs in the grade. Information about market salaries can be obtained from industry associations, peers in the industry, Labour organisations and professional associations, Bureaux of Statistics, education institutions (regarding salary levels for graduates), recruitment firms, newspaper job ads, the internet, and consulting firms. The quality of information varies markedly depending on the source. The information presented may be based on matches to standard job descriptions/job titles, or on a job-evaluated basis. In the latter, all jobs whose data is included in the survey are evaluated using a common job evaluation system. This allows a quantitative relationship between job size and salary level to be established.
The data may focus on specific job groups such as those in a particular job family i.e. engineers, or on an industry, or in a geographic region.
If no suitable source of data is available, the organisation can conduct a customised survey specific to its needs. These take time. There is the need to define the jobs to be surveyed, canvass survey participants, collect and verify the data, and analyse and distribute the results to survey participants.
The NRC conducts a number of surveys, both standard, regular productions and customised once-off surveys. Some NRC surveys are general all-industries surveys, and others are specific to a particular industry. Both job description match and job evaluated surveys are conducted.
Based on its job evaluated surveys the NRC publishes sets of figures that relate job size, as measured by Jobscore, to market salaries. These figures can be readily translated into grade mid-point salaries for any Jobscore evaluated grade structure. A range of figures are published at various levels in the market (various percentile and quartile positions) so that an organisation can set their pay structure at their desired position in the market.
For example, consider an organisation that wishes to place its salary structure at the median of a general all-industries market. A single equation provided by the NRC is used to set all grade mid-point salaries. An example of such a formula is expressed as $11,981 plus $154.76 per job point.
If the midpoint job evaluation for a particular grade in the organisation is 384 points then using this formula, the corresponding grade midpoint salary is:
$11,981, plus $154.76 multiplied by 337, which equals $64,135.
[This is the model used in Figure 4, Section 1.3.1 (refer Grade 4 in that Figure).]
Using this formula, the mid-point salary for each grade in the structure can quickly be determined. The maximum and minimum salary for each grade is then calculated from the midpoint as determined by the band width for the grade.
5. Budgeting for Remuneration.
In Section 1.2.4b Alignment with Market Rates, an across-the-board increase of 3% was applied to a salary structure to arrive at the corresponding revised salary range for each grade. Such an adjustment, together with the number of employees in each grade, and their compa-ratio (position in the salary range) allows us to readily calculate the cost of such adjustments. In the simplest case, where there is no movement in individual employee's compa-ratio and the movement is uniform for all grades (such as in the 3% movement example) the overall increase in the payroll budget is simply 3% of the total current payroll.
The second scenario is where the comp-ratios (performance ratings) are to remain constant but the change in salary level for each grade differs. Here the calculation needs to be made on a grade by grade basis, to obtain the total increase in payroll.
More interesting is the case where changes in compa-ratio due to changed performance appraisal levels need to be implemented. The easiest way to assess the change in payroll resulting from the combined effect of changed compa-ratios, with or without changed grade salary levels is with a spreadsheet. If the organisation has a very large number of jobs then a simple computer program is preferable.
Where there is no change to grade salary levels the increase for each employee is calculated as:
Grade mid-point salary multiplied by new compa-ratio, minus current salary. [Here current salary is equal to grade midpoint multiplied by current compa-ratio.]
Take for example the grade salary levels shown in Figure 4 (Section 1.3.1). If a particular employee is in Grade 3 in that structure (where the midpoint salary for the grade is $53,700) and their compa-ratio is 93% then their current salary is 93% of $53,700, or $49,940. If the employee's performance is reassessed as 97% of the fully competent position (100%), then their salary should be increased to 97% of $53,700, or $52,090. This is an increase of $2,150.
In this manner, the increase for each employee is calculated and the total for all employees gives the resulting total payroll increase.
Suppose now that an increase in grade salary ranges is to be implemented in conjunction with performance assessment adjustments. Here, the new salary level for employees must be calculated based on their new compa-ratio in combination with the new mid-point salary for their job grade. Consider the above example again, but assume the mid-point of the grade moves by 3% from $53,700 to $55,310. In this case, the employee's new salary will be 97% of $55,310, or $53,650, giving an overall increase of $3,710.
Increases for all employees are calculated and added to arrive at the total payroll increase.
If the resulting increase in cost due to the combined effect of performance appraisal in combination with grade salary level movements exceeds the allocated budget for salary increases, then the grade salary level movement needs to be adjusted. In such circumstance, compa-ratios should not be amended to reduce the overall cost as that is merely a corruption the performance appraisal system and denies recognition of employees' performance.
6. Long Term HR and Remuneration Planning.
The calculations described in the previous Section are suitable for current term budgeting. However longer range estimates need to consider a number of additional factors, including for example:
• Changes in the employee mix such as higher proportions of technical staff or outsourcing of activities.
• Employee turnover for the various classifications of staff.
• Anticipated higher or lower market demand for various categories of staff.
• Impact of training programs on employee performance and hence compa-ratios.
• Expected impact of the economic environment on wage levels in the organisation's employment market.
• The changing cost of providing certain types of benefits, such as a car.
• Expected impact of government legislation, such as changes to the Super Guarantee Charge, or FBT.
• Expected impact of labour union demands, for example working hours, annual leave entitlements, provision of special leave such as maternity/paternity leave.
• Levels of absenteeism.
• Expected changes in the organisation's structure.
• Expected impact on employee numbers and job levels due to realisation of the organisation's business plans.
Employees are a key resource in which the organisation invests and management has a duty to stakeholders in the organisation to ensure that such resource is utilised to maximum effect. Payroll makes up forty per cent of the total operating cost of many organisations. In that regard, it is a significant investment requiring a commensurate level of careful analysis and planning. Human resources planning is therefore an important area in which Human Resources professions can contribute to the effective management of this essential organisational resource.
Long range human resources planning includes consideration of the factors listed above as they influence the cost of employment and employee numbers. Training programs, succession planning, recruitment methods, incentive schemes and such are further components. Like any other significant aspect of managing an organisation, analysing the array of human resource issues to arrive at a conclusion is a complex matter. Solutions can frequently only be arrived at in probabilistic terms. In other words, the assessments of expected outcomes have to be based on the best-informed assumptions one can make, in conjunction with the likelihood of those assumptions eventuating.
Fortunately, models of the various scenarios can be built using spreadsheets. Overly complex models are probably unwarranted because of the looseness of assumptions that need to be made about the expected outcomes for the various factors taken into account. The outcomes of these models in the remuneration context are the numbers and levels of staff required and their total cost of employment.
A major area where Jobscore is used in longer term HR planning is to examine the impact of organisation changes on the size of jobs in the future organisation. Revised job sizes in conjunction with the required changes to numbers of employees in various grades due to restructuring, divestment, acquisition, or growth gives an indication of the corresponding expected total salary bill. This analysis by the HR professional supports other business assessments examining the viability of or the best path forward regarding organisation changes or plans.
Henry Warren
Melbourne
http://www.natrem.com.au/grades/index.html
CHAPTER 14: JOB EVALUATION METHODS
Overview: This chapter describes how to conduct job analysis and job evaluation in order to establish a rational wage structure.
Corresponding Courses:
33 Conducting Job Analysis
34 Installing Job Evaluation in Your Organization
The job evaluation process begins with securing information about jobs. Failure to secure complete job facts has been cited as a primary reason for job evaluation failure.1 Later steps in job evaluation become virtually impossible without adequate job information.
Information about jobs is obtained through a process called job analysis. The goal of this process is to secure whatever job data are needed. Job analysis has many uses. Organizations use information obtained by job analysis for such personnel programs as recruitment, selection, and placement; organization planning and job design; training; grievance settlement; as well as job evaluation and other compensation programs. You may wish to obtain your certification in Job and Compensation Analysis, to demonstrate your mastery of this vital function.
Job evaluation represents the major use of job analysis. It is also our focus in this chapter. Because the job information needed for various uses may differ, some organizations make a specialized study for each specific use. Another approach is to obtain all the needed job information at once. A 1983 review of job analysis defines it as a procedure for gathering, documenting, and analyzing information about three basic aspects of a job: content, requirements, and context.2 The authors of this review strongly imply that such a job analysis would be sufficient for all purposes.
But the different uses of job information may require specialized job descriptions. Job evaluation requires information that permits distinguishing jobs from one another, usually on the basis of work activities and/or job required worker characteristics. Recruitment and selection require information on the human attributes a successful jobholder must bring to the job. Training requires information on the knowledge and skills that the successful jobholder must evidence. Job design may require identifying employee perceptions of intrinsic and extrinsic rewards. Although there is overlap among these different requirements, arguments for separate job analysis for separate purposes are understandable.
BACKGROUND
Job analysis as a management technique was developed around 1900.3 It became one of the tools with which managers understood and directed organizations. Frederick W. Taylor, through his interest in improving the efficiency of work, made studying the job one of his principles of scientific management.4 Early organization theorists were interested in how jobs fit into organizations: they focused on the purpose of the job.5 But this early interest in job analysis disappeared as the human relations movement focused on other issues. It was not until the 1960s that psychologists and other behavioral scientists rediscovered jobs as a focus of study in organizations.
The organization with the greatest long-term interest in job analysis has been the United States Department of Labor (DOL). The United States Employment Service (USES) of the DOL's Training and Employment Administration has developed job analysis procedures and instruments over many years. These procedures probably represent the strongest single influence on job analysis practice in the United States. The DOL's Guide for Analyzing Jobs and Handbook for Analyzing Jobs show the development of job analysis procedures over almost 50 years.6 They are responsible for publishing The Dictionary of Occupational Titles (DOT)7, and they have a policy of helping private employers install job analysis programs. The DOL has led in the development of what is often called the conventional approach to job analysis.
More recently the interest in job analysis has been based on the passage of civil rights legislation. Job analysis is required in the field of staffing since any predictor used to select a person must be job-relevant. Determining job relevance requires having a knowledge of what is happening in the job, usually through job analysis. Likewise, in compensation, the requirements of the Equal Pay Act requires jobs that are substantially similar to be paid the same. The determination that two jobs are substantially similar is done through job analysis.
Job analysis is also an important part of Fair Labor Standards Act (FLSA) determinations. When making an FLSA exempt employee determination, you need up-to-date and accurate job descriptions. These are crucial for determining the duties of a position. After all, according to new FLSA overtime regulations, its the duties that count. For in-person instruction on job analysis and new FLSA regulations, see DLC HR Training Seminars.
Americans with Disabilities Act
Perhaps the major legal reason for conducting job analysis in organizations is the Americans with Disabilities Act (ADA). This act requires employers to consider for hire or continued employment any person who can perform the "essential elements" of the job. The act assumes that if the person can perform the essential tasks or elements of the job, then the employer can provide "reasonable accommodation" to the employee so that he/she can perform the job. Since the passage of the act, many organizations have begun to place in all job descriptions a statement of the job's essential tasks or elements. This aids in hiring and placement decisions.
Job Analysis in the 1980s
The 1980s were a period of ferment in the field of job analysis. It was as if the concept had been rediscovered after lying fallow for many years. Actually, what became apparent was that jobs were more complex than had been realized. There was no agreement, though, on what information to collect or on how to collect it.
APPROACHES TO ANALYZING JOBS
There is no one way to study jobs. Several models of job analysis now exist, but as we will see shortly, each leaves something to be desired. The job analysis formula outlined by the DOL in 1946 is a simplified but complete model of obtaining information on work activities. The formula consists of (1) what the worker does, (2) how he or she does it, (3) why he or she does it, and (4) the skill involved in doing it. In fact, providing the what, how, and why of each task and the total job should constitute a functional description of work activities for compensation purposes.
By 1972, however, this formula had been expanded by the DOL to encompass five models as described in Figure 14-1. Note that work activities in the 1946 formula become worker behaviors identified through the use of functional job analysis.8 Models 2 and 3 are elaborations of the how question in the original format. The fourth model is an elaboration of the why (purpose) question in the original formula. Finally, worker traits or characteristics represent an additional type of job information.
Figure 14-1 Five Types of Job Descriptors
1. Worker Functions. The relationship of the worker to data, people, and things.
2. Work Fields. The techniques used to complete the tasks of the job. Over 100 such fields have been identified. This descriptor also includes the machines, tools, equipment, and work aids that are used in the job.
3. Materials, Products, Subject Matter, and/or Services. The outcomes of the job or the purpose of performing the job.
4. Worker Traits. The aptitudes, educational and vocational training, and personal traits required of the worker.
5. Physical Demands. Job requirements such as strength, observation, and talking. This descriptor also includes the physical environment of the work.
Source: U.S. Department of Labor, Handbook for Analyzing Jobs (Washington, D.C.: U.S. Government Printing Office, 1972).
Thus the 1972 approach implies that the job information needed has changed from work activities (tasks) to worker behaviors. It also suggests that the how and why of work activities (but not the work activities themselves) are more important. Finally, worker characteristics are added to the job information required. No explanation is provided for the change in needed information. In fact, it is assumed that worker behaviors (functions), work fields, tools, and products and services represent work performed. The 1972 approach seems to represent neither a consistent model of job information, nor a method of obtaining such information.
McCormick classifies job descriptors as follows:
1. work activities
a. job-oriented activities
b. worker-oriented activities
2. machines, tools, equipment
3. work performed
4. job context
5. personnel requirements9
This classification suggests that job analysis can yield six kinds of useful job information. These descriptors presumably flow from McCormick's model of the operational functions basic to all jobs, sensing (information receiving), information storage, information processing, and decision and action (physical control or communication). These functions vary in emphasis from job to job. It is not clear how the five descriptors flow from this model, however.
Richer suggests that the following job information is needed by organizations: (1) job content factors; (2) job context factors; (3) worker characteristics; (4) work characteristics; and (5) interpersonal relations (internal and external).10 Although this is an interesting approach, the rationale for obtaining these types of information is not clear.
None of these models has provided a rationale for all the descriptors they mention. In fact, the grounds for collecting some of the types of information do not appear to be clear. For example, are worker behaviors synonymous with work activities? It seems that managers are more likely to use the term work activities and organizational psychologists the term worker behaviors. We believe they are separate concepts. The former refers to formal work-devoted acts; the latter would include informal activities not all of which are pertinent to work goals.
Pay Systems Exchange Model
Since the job is the connection between the organization and the employee, it may be useful to develop a model based upon this common connection. We can say that both the organization and the employee contribute to the job and expect to receive something from it. In order for these results to come about, something has to happen inside the job. This dual systems-exchange model is illustrated in Figure 14-2.
The vertical dimension of the model is the person-job relationship. The person brings his or her abilities and effort to the job (cell 1). These are used in activities, which are divided into physical, mental, and interactional types (cell 3). The results, for the person, are the rewards and satisfaction received from working on the job (cell 5). These rewards can be both intrinsic and extrinsic. The latter are the basic subject of this book.
The horizontal dimension of the model is the organization-job relationship. The organization brings to the job resources needed to perform the job and ways to do the job that coordinate with organizational needs; the latter are perceived as constraints (cell 2). These resources and constraints determine the way the job activities (cell 3) are carried out. The organizational results are some product created or service performed by the employee; these outcomes are in the form of a change in data, people, and/or objects (cell 4). These results can be defined in terms of quantity, quality, and time. This model suggests that information (descriptors of jobs) can be collected on the purpose of the job (cell 4), the activities of the job (cell 3), the worker requirements of the job (cell 1), the organizational context of the job (cell 2), and the rewards of the job to the worker (cell 5).
Figure 14-2 Systems exchange model of job analysis
Levels of Analysis
By titling the concept we are discussing job analysis we imply that the unit of analysis is the job. Actually, the level or unit of analysis represents a decision that is worthy of discussion.
The lowest level is employee attributes, the knowledge, skills, and abilities required by the job.11 Some of the models discussed in the previous section suggested this level of descriptor.
One level up is the element. An element is often considered the smallest division of work activity apart from separate motions, although it may be used to describe singular motions. As such, it is used primarily by industrial engineers.
The next level is the task, a discrete unit of work performed by an individual. A task is a more independent unit of analysis. It consists of a sequence of activities that completes a work assignment. As such it has all the aspects of the model in figure 14-1.
When sufficient tasks accumulate to justify the employment of a worker, a position exists. There are as many positions as employees in an organization.
A job is a group of positions that are identical in their major or significant tasks. The positions that are sufficiently alike, in other words, to justify being covered by a single analysis and description. One or many persons may be employed on the same job.
Jobs found in more than one organization are termed occupations.
Finally, occupations grouped by function are usually referred to as job families.
Obviously, the level or unit of analysis chosen may influence the decision of whether the work is similar or dissimilar. By law (the Equal Pay Act of 1963) if jobs are similar, both sexes must be paid equally; if jobs are different, pay differences may exist.
As suggested in the previous section, the unit of analysis used differs among organizations. Although the procedure is called job analysis, organizations using it may collect data at several levels of analysis. Research has shown that jobs can be similar or dissimilar at different levels of analysis.12 The more detailed the analysis, the more likely that differences will be found.
METHODS OF OBTAINING JOB INFORMATION
After deciding on descriptors and the level of analysis, the organization must determine which method is to be used to collect job information. Although there are a number of methods of obtaining job information (observation, interviews with job incumbents or experienced personnel and supervisors, structured and non-structured questionnaires, diaries kept by workers, data on critical incidents, and work sampling), they are perhaps best understood if we classify them as (1) conventional procedures, (2) standardized instruments, (3) task inventories, and (4) structured methods.
This classification is only marginally satisfactory. It will be seen that these job analysis methods differ in descriptors, levels of analysis, and methods of collecting, analyzing, and presenting data. We will evaluate these approaches in terms of purpose, descriptor applicability, cost, reliability, and validity.
Conventional Procedures
Conventional job analysis programs typically involve collecting job information by observing and/or interviewing job incumbents. Then job descriptions are prepared in essay form. Much of the conventional approach comes from the long experience of the United States Employment Service in analyzing jobs. As mentioned in our discussion of models, the original job analysis formula of the DOL provided for obtaining work activities. The DOL's 1972 revision of this schedule requires the job title, job summary, and description of tasks (these were referred to as work performed in the 1946 formula), as well as other data.
Conventional job analysis treats work activities as the primary job descriptor. As a consequence, the use of the conventional approach by private organizations focuses largely on work activities rather than on the five types of descriptors used in the DOL job analysis schedule (Figure 14-1).
Because job evaluation purports to distinguish jobs on the importance of work activities to the employing organization, this descriptor seems primary. As we noted, in fact, using the DOL's original job analysis formula (what the worker does, how the worker does it, and why the worker does it) may provide reasonable assurance that all the work activities are covered. One of the functions of this model is to require the analyst to seek out the purpose of the work.
In some private use of the conventional approach, worker attributes required by the job are also sought. Ratings of education, training, and experience required may be obtained, as well as information on contacts required, report writing, decisions, and supervision. In part, these categories represent worker attributes, and in part they represent a search for specific work activities.
Some conventional job analysis programs ask job incumbents to complete a preliminary questionnaire describing their jobs. The purpose is to provide the analyst with a first draft of the job information needed. It is also meant to be a first step in obtaining incumbent and supervisor approval of the final job description. Of course, not all employees enjoy filling out questionnaires. Also, employees vary in verbal skills and may overstate or understate their work activities. Usually, the job analyst follows up the questionnaire by interviewing the employee and observing his or her job.
Responsibilities and Duties
We should not leave this section on conventional job analysis techniques without a word about two commonly used terms, responsibilities and duties. While job descriptions are often organized around these concepts, we feel that they are not useful terms in identifying job content. Both terms move the analyst away from thinking about what is done and how. When done well, descriptions of duties and responsibilities describe why work is done adequately. But few of these descriptions do even this well. This leaves the job incumbent with some vague statement about why he or she is doing something, but little knowledge of what it is or how to do it. Determining performance levels is made difficult. And the job evaluator has a collection of words that provide little help in determining the relative worth of jobs in the organization. Adjectives become the main determinant of job level. It is this kind of job description that has lead many personnel directors to decry the futility of job analysis and job descriptions.
Reliability and Validity
Conventional job analysis is subjective. It depends upon the objectivity and analytical ability of the analyst as well as the information provided by job incumbents and other informants. Measuring reliability (consistency) and validity is difficult because the data are nonquantitative. Having two or more individuals analyze the job independently would provide some measure of reliability but would also add to the cost. Perhaps the strongest contributor to both reliability and validity is the common practice of securing acceptance from both job incumbents and supervisors before job descriptions are considered final. Cost is also an issue here.
Costs
Conventional job analysis takes the time of the analyst, job incumbents, and whoever is assigned to ensure consistent analysis and form. In the authors' experience, people with moderate analytical skills can be taught to analyze jobs on the basis of the job analysis formula (what, how, why) in a few hours.
An early survey found some dissatisfaction with conventional job analysis, especially with its costs and with the difficulty of keeping the information current.13 McCormick's review of job analysis, while concluding that the continued use of conventional methods testifies that they serve some purposes well, suggests more attention to a comprehensive model and more quantification.14
As suggested earlier in the chapter, a good deal of research is presently being devoted to job analysis. The work to date suggests to us that work activities represent the primary descriptor in job analysis for job evaluation purposes. However, these data take considerable effort to obtain and are of questionable reliability. It would be desirable to develop a standardized quantitative approach that retains the advantages of conventional job analysis, while permitting a less costly and time-consuming approach.
Standardized Instruments
Quantitative job analysis instruments do exist. The best known is the Position Analysis Questionnaire (PAQ) developed by McCormick and associates at Purdue University. The PAQ is a structured job analysis questionnaire containing 194 items called job elements.15 These elements are worker-oriented; using the terminology of the DOL's 1972 job analysis formula, we would call them worker behaviors. The items are organized into six divisions: (1) information input, (2) mental processes, (3) work output (physical activities and tools), (4) relationships with others, (5) job context (the physical and social environment), and (6) other job characteristics (such as pace and structure). Each job element is rated on six scales: extent of use, importance, time, possibility of occurrence, applicability, and a special code for certain Jobs.
The PAQ is usually completed by job analysts or supervisors. In some instances managerial, professional, or other white-collar job incumbents fill out the instrument. The reason for such limitations is that the reading requirements of the method are at least at the college-graduate level.
Data from the PAQ can be analyzed in several ways. For a specific job, individual ratings can be averaged to yield the relative importance of and emphasis on various job elements, and the results can be summarized as a job description. The elements can also be clustered into a profile rating on a large number of job dimensions to permit comparison of this job with others. Estimates of employee aptitude requirements can be made. Job evaluation points can be estimated from the items related to pay. Finally, an occupational prestige score can be computed. Analysts can have PAQ data computer-analyzed by sending the completed questionnaire to PAQ Services.
The PAQ has been used for job evaluation, selection, performance appraisal, assessment-center development, determination of job similarity, development of job families, vocational counseling, determination of training needs, and job design.
The PAQ has been shown to have a respectable level of reliability. An analysis of 92 jobs by two independent groups yielded a reliability coefficient of 0.79.16
If our earlier analysis of job descriptors is correct, then in spite of the successful use of the PAQ for job evaluation purposes, its use of worker behaviors instead of work activities as descriptors may limit its acceptability to employees. Also its lack of employee involvement, as well as its use of only 9 of the 194 job elements when used in job evaluation may limit its acceptability.
Task Inventories
The task inventory emphasizes work activities. In this approach a list of tasks pertinent to a group of jobs is developed. Then the tasks involved in the job under study are rated on a number of scales by incumbents or supervisors. Finally the ratings are manipulated statistically, usually by computer, and a quantitative job analysis is developed. Actually any method of job analysis, even narrative job descriptions, could be termed a task inventory if an analysis of the data can provide quantitative information from appropriate scales. One example of this type of job analysis is the Comprehensive Occupational Data Analysis Program (CODAP). Undoubtedly the best-known task inventory is the one that has been developed over many years by Raymond E. Christal and his associates for the United States Air Force.17 The heart of the program is a list of tasks involved in a particular job. After the task list has been prepared by incumbents, supervisors, or experts, incumbents are asked to indicate whether they perform each of the tasks. They are then asked to indicate on a scale the relative amount of time spent in performing each particular task. Other ratings are also obtained, such as training time required and criticality of performance.
The ratings are then summed across all tasks and an estimated percentage of time on each task is derived. The total percentages account for the total job. The relative times are then used to develop a group job description.
Computer programs are used to analyze, organize, and report on data from the task inventory. The programs are designed to provide information for a variety of applications. For example, the CODAP can describe the types of jobs in an occupational area, describe the types of jobs performed by a specified group of workers, compare the work performed at various locations or the work performed by various levels of personnel, and produce job descriptions. The program can process data on 1,700 tasks for each of 20,000 workers.
The CODAP is most useful for large organizations and is relatively costly. The descriptor employed is work activities, and the output of the analysis is the work performed. Worker requirements must be inferred, as in conventional job analysis. Data developed by this method have been used in selection to identify training needs and design training programs, to validate training completion as a training criterion, to restructure jobs, and to classify jobs. The CODAP is used in all branches of the United States military, federal government, and some local governments.
Like most computer-driven systems, the technique is as good as the input. Computer analysis cannot correct for inaccurate or incomplete information. Using trained personnel to develop inventories of specific tasks is therefore a requirement of the method. Given a complete and accurate task inventory, statistical analysis of the distribution of the ratings provides some indications of reliability and validity.
Functional Job Analysis
Functional Job Analysis (FJA) is usually thought of in terms of the familiar "data, people, things" hierarchies used in the Dictionary of Occupational Titles. Developed by Sidney A. Fine and associates, this comprehensive approach has five components: (1) identification of purposes, goals, and objectives, (2) identification and description of tasks, (3) analysis of tasks on seven scales, including three worker-function scales (one each for data, people, and things), (4) development of performance standards, and (5) development of training content.18
FJA data are developed by trained job analysts from background materials, interviews with workers and supervisors, and observation. The method provides data for job design, selection, training, and evaluation and could be used at least partially for most other personnel applications. It has been applied to jobs at every level.
The major descriptor in FJA is work activity. A number of task banks have been developed by Fine and his colleagues as a means of standardizing information on this descriptor. FJA is rigorous, but it does require a heavy investment of time and effort.
JOB ANALYSTS
Employees, supervisors, and job analysts perform the tasks of collecting and analyzing job information. Job incumbents have the most complete and accurate information, but getting this information and making the results consistent requires attention to data-collection methods. Also, employee acceptance of the results is a priority, and employee involvement in data collection and analysis tends to promote this.
Supervisors may or may not know the jobs of their subordinates well enough to be useful sources of job information. If they do know the jobs well enough, a great deal of time and money can be saved.
Job analysts have been trained to collect job information. They know what to look for and what questions to ask. They also know how to standardize the information and the language employed. People with various educational backgrounds have been trained as job analysts. Most organizations train their own job analysts by having them work with experienced analysts. Experience suggests that limited training suffices to provide these skills.
Some organizations place new personnel staff as job analysts as an early assignment. This approach permits new incumbents to learn something about the organization's work and provides a pool of trained analysts.
When supervisors and job incumbents are used in job analysis, some training is required. As repeatedly emphasized, involvement by employees and supervisors increases the usefulness and acceptance of the data and personnel process which use these data.
Ideally, the increased interest in job analysis mentioned previously will result in methods that will make job analysis easier for all involved. In the meantime, the more people who can analyze jobs consistently and accurately, the better the personnel decisions based on the information thus obtained will be.
JOB DESCRIPTIONS
Regardless of who collects job information and how they do it, the end-product of job analysis is a standardized job description. A job description describes the job as it is being performed. In a sense, a job description is a snapshot of the job as of the time it was analyzed. Ideally they are written so that any reader, whether familiar or not with the job, can "see" what the worker does, how, and why. What the worker does describes the physical, mental, and interactional activities of the job. How deals with the methods, procedures, tools, and information sources used to carry out the tasks. Why refers to the objective of the work activities; this should be included in the job summary and in each task description.
An excellent set of prescriptions of writing style for job descriptions is offered by the Handbook for Analyzing Jobs.19 These include a terse, direct style; present tense; an active verb beginning each task description and the summary statement; an objective for each task, and no unnecessary or fuzzy words. The handbook also suggests how the basic task statement should be structured: (1) present-tense active verb, (2) immediate object of the verb, (3) infinitive phrase showing the objective. An example would be: (1) collects, (2) credit information, (3) to determine credit rating.
Unfortunately, many words have more than one meaning. Perhaps the easiest way to promote accurate job description writing is to select only active verbs that permit the reader to see someone actually doing something.
Sections
Conventional job descriptions typically include three broad categories of information: (1) identification, (2) work performed, and (3) performance requirements.
The identification section distinguishes the job under study from other jobs. Obviously industry and company size are needed to describe the organization, and a job title is actually used to identify the job. The number of incumbents is useful, as well as a job number if such a system is used.
The work-performed section usually beings with a job summary that describes the purpose and content of the job. The summary is followed by an orderly series of paragraphs that describe each of the tasks. Job analysts tend to write the summary statement after completing the work-performed section. They find that the flag statements for the various tasks provide much of the material for the summary statement.
The balance of the work-performed section presents from three to eight tasks in chronological order or in order of the time taken by the task. Each task is introduced by a flag statement that shows generally what is being done followed by a detailed account of what, how, and why it is done. Each task is followed by the percentage of total job time it requires.
The performance-requirements section sets out the worker attributes required by the job. This section is called the job specification. Job descriptions used for job evaluation may or may not include this section. An argument can be made that worker attributes must be inferred from work activities. This would require the job analyst to not only collect and analyze job information but also make judgments about job difficulty.
Managerial job descriptions
Managerial job descriptions differ from non-managerial job descriptions in what are called scope data. For example, financial and organizational data are used to locate managerial jobs in the hierarchy. The identification section of managerial job descriptions is usually more elaborate and may include the reporting level and the functions of jobs supervised directly and indirectly. The number of people directly and indirectly supervised may be included, as well as department budgets and payrolls. The work-performed section of managerial job descriptions, like that of non-managerial job descriptions, includes the major tasks, but gives special attention to organization objectives. Writers of managerial job descriptions need to remember that "is responsible for..." does not tell the reader what the manager does.
Careful writing is a requirement of good job descriptions. The words used should have only one possible connotation and must accurately describe what is being done. Terms should not only be specific but should also employ language that is as simple as possible.
Obviously, when job descriptions are written by different analysts, coordination and consistency are essential. These are usually provided by having some central agency edit the job descriptions.
For two examples of job descriptions, see Figures 14-3 and 14-4.
Figure 14-3 Non-managerial Job Description
JOB TITLE: Sales Clerk
JOB SUMMARY: Serves customers, receives and straightens stock, and inspects dressing rooms.
TASKS
1. Serves customers to make sales and to provide advice: Observes customers entering store, approaches them and asks to help, locates desired articles of clothing, and guides customers to dressing rooms. Decides when to approach customers and which articles of clothing to suggest. Sometimes gets suggestions from other sales clerks or supervisor. Rings up purchases on cash register and takes cash or check or processes credit card. Decides whether check or credit-card acceptance is within store policy. (80%)
2. Receives and arranges stock to attractively exhibit merchandise: Unpacks boxes, counts items, and compares with purchase orders. Reports discrepancies to supervisor. Arranges and inspects new and old merchandise on racks and counters. Removes damaged goods and changes inventory figures. Decides where to place items in the store, within guidelines of supervisor. Twice a year helps with taking inventory by counting and recording merchandise. (15%)
3. Inspects dressing rooms to keep them neat and discourage shoplifting: Walks through dressing area periodically, collecting clothing left or not desired. Remains alert to attempts to shoplift clothing from dressing area. Decides when security needs to be called in. Re-hangs merchandise on sales floor. (5%)
Figure 14-4 Managerial Job Description
JOB TITLE: Branch Bank Manager
JOB SUMMARY: Promotes bank in community and supervises branch operations and lending activities.
TASKS
1. Promotes bank services in the community to increase total assets of the bank: Engages in and keeps track of community activities, both commercial and social. Identifies potential customers in community. Analyzes potential customer needs and prospects, plans sales presentation, and meets with potential customers to persuade them to use bank services. (40%)
1. Supervises branch operation to minimize cost of operation while providing maximum service: Plans work activity of the branch. Communicates instructions to subordinate supervisors. Observes branch activity. Discusses problems with employees and decides or helps employees decide course of action. Coordinates branch activities with main office. Performs personnel activities of hiring, evaluating, rewarding, training, and disciplining employees and financial activities of budgeting and reviewing financial reports. (35%)
1. Evaluates and processes loan requests to increase revenues of the bank: Reviews and analyzes loan requests for risk. Seeks further information as appropriate. Approves (or denies) requests that fall within branch lending limits. Prepares reports to accompany other loan requests to bank loan committee. Keeps up with changes in bank lending policy, financial conditions, and community needs. (25%)
JOB EVALUATION
While job analysis describes the job, job evaluation develops a plan for comparing jobs in terms of those things the organization considers important determinants of job worth.
Determinants of Job Status
The next step in job evaluation is to determine what the organization is "paying for" -- what aspects of jobs place one job higher in the job hierarchy than another job. These yardsticks are called compensable factors.
In the previous chapter we suggested that the job information needed for job evaluation consists of work activities and worker requirements. But what aspect or aspects of work activities and/or which worker requirements are to be used? The choice of yardstick will strongly influence where a job is placed in the hierarchy.
We also noted in the first part of this chapter that some methods of job analysis require analysts to describe jobs in terms of pre-selected factors. This practice seems to assign to job analysts not only the analysis but the evaluation of jobs. A legitimate question is whether this combination of information gathering and evaluation may introduce bias to job evaluation.
Whole-Job Methods
Some job evaluation methods (to be described later) are classified as whole-job methods, implying that compensable factors are not used because "whole jobs" are being compared. If this means that one broad-based factor rather than several narrower factors is employed, no problem occurs. But if whole-job means that jobs can be compared without specifying the basis of comparison, the result may be a different basis of comparison for each evaluator. If this reasoning is correct, then useful job evaluation must always utilize one or more compensable factors.
Compensable Factors
To be useful in comparing jobs, compensable factors should possess certain characteristics. First, they must be present in all jobs. Second, the factor must vary in degree. A factor found in equal amounts in all jobs would be worthless as a basis of comparison. Third, if two or more factors are chosen, they should not overlap in meaning. If they do overlap, double weight may be given to one factor. Fourth, employer, employee, and union viewpoints should be reflected in the factors chosen; consideration of all viewpoints is critical for acceptance. Fifth, compensable factors must be demonstrably derived from the work performed.
The factors must be observable in the jobs. For this reason responsibility is a hard factor to use. Compensable factors can be thought of as the job-related contributions of employees. Documentation of the work-relatedness of factors comes from job descriptions. Such documentation provides evidence against allegations of illegal pay discrimination. It also provides answers to employees, managers, and union leaders who raise questions about differences among jobs.
Finally, compensable factors need to fit the organization. Organizations design jobs to meet their goals and to fit their technology, culture, and values.
Job evaluation plans vary in the number of factors they employ. Nine to eleven factors are not unusual, but single-factor plans also exist. Jaques' Time Span of Discretion (the time before submarginal performance becomes evident) may be considered a single-factor plan, although Jaques insists that it represents measurement.20 Charles's single-factor plan is based on problem solving.21 Patterson's decision-band method is another single-factor plan.22
Methods of Determining Compensable Factors
Many organizations adopt standard job evaluation plans and thus the factors on which they are based are predetermined. Perhaps more organizations adjust existing plans to their own requirements. The factors in most existing plans tend to fall into four broad categories: skills required, required effort, responsibilities, and working conditions. These factors are used in numerous job evaluation plans. They are also the factors written into the Equal Pay Act of 1963 and used to define equal work.
Definitions and divisions of these factors vary greatly. Years of education required by the job is a common definition of skill, as is experience required. Skill is likewise often divided into mental and manual skills. In this way, a job evaluation plan may be tailored to the needs of the organization.
In most job evaluation plans the factors are chosen by a committee, as described in chapter 13. Broad representation on the committee helps to insure acceptance of the factors chosen.
One of the best-known job evaluation plans, the National Electrical Manufacturers (NEMA) plan, was designed by a group of 25 experienced people who knew much about the jobs to be evaluated. These people were asked to review the job descriptions of 50 key jobs and to list all the job characteristics, requirements, and conditions that in their opinion should be considered in evaluating the jobs. The group came up with 90 job attributes, which were finally reduced to 11 within the four broad categories just mentioned.
Perhaps the best-known union-management job evaluation plan (the Steel Plan) was developed by a committee of union and management representatives. Such joint determination of compensable factors is presently being used in the communication and utilities industries. Employee acceptance of factors tends to be enhanced by their involvement in determining them.
Some job evaluation plans determine compensable factors statistically from quantitative job analysis. For example, the factors in the Position Analysis Questionnaire (PAQ) used for job evaluation were obtained by finding those elements most closely related to pay.23 Statistical techniques may help ensure that the factors chosen are related to the work and are legally defensible. But factors derived statistically are not always accepted by employees as applicable to their jobs.
Use of the Managerial Position Description Questionnaire at Control Data Corporation resulted in eight factors derived by statistical analysis. The managers, however, did not believe that the factors reflected their jobs. Only after those factors were merged with factors developed by committee judgment were they accepted, even though both sets resulted in the same job structure.24 The major advantage of the statistical approach is that it can determine how reliably the factors measure the jobs; however, the funds and the expertise needed to conduct statistical analysis are not always available. The committee or the questionnaire approach may yield equally useful compensable factors if based on adequate job descriptions.
NUMBER OF PLANS
Whether to employ a single plan to evaluate all the organization's jobs or a separate plan for each of several job families must also be decided. There is a strong tendency for organizations, especially large ones, to use multiple plans. Using different compensable factors for different job families may be justified in several ways. The organization may be paying for different things in different job groups. Also, the wages of different job families do not always move together and in equal amounts.
Equally important, Livernash has shown that job-content comparisons are strongest within narrow job clusters and weakest among broad job clusters.25 Employees in the same job family are likely to make job comparisons. Job relationships are likely to be influenced by custom and tradition, as well as by promotion and transfer sequences.
For all these reasons, organizations commonly have separate job evaluation plans for different functional groups (for example: production jobs, clerical jobs, professional and technical jobs, and management jobs).
There is evidence that equal employment opportunity rules are causing organizations to reexamine their choice of single or multiple plans. Obviously, comparing all jobs within an organization for evidence of discrimination based on sex or race suggests employing a single plan. The National Academy of Sciences study for the Equal Employment Opportunity Commission argued strongly in its interim report (but not the final report) for a single plan for the organization.26
Although a number of organizations are opting for a single plan, defining compensable factors that are applicable to all jobs and acceptable to employees is difficult. As a consequence, there may be a growing tendency for organizations to use fewer plans keyed to job groups whose incumbents are balanced by gender and race. One alternative would be (1) a plan for service or production and maintenance jobs paid primarily for physical skills, (2) a plan for office and technical jobs paid primarily for mental skills, and (3) a plan for exempt jobs (managerial and professional) paid primarily for discretionary skills.
Another possible approach is a common set of compensable factors used along with a set of factors unique to particular functional areas. The latter tend to make the plan more acceptable to employees and managers. Where more than one job evaluation plan is used and questions of bias are raised, it is common to evaluate the job in question with other plans and compare results. Organizations that employ more than one job evaluation plan should identify a series of jobs that can be evaluated on two plans to ensure consistency of results across plans.
It is still usual for organizations to have more than one job evaluation plan. The plan may have quite different factors or merely different definitions for the same factors. In the former case, factors such as responsibility and decision making are used for executive jobs, physical demands and skills for manual jobs, and accuracy and amount of supervision for clerical and technical jobs. The rationale for different plans for different job families is that the organizations pay for different things in different job families.
A number of plans are designed to evaluate all the jobs in an organization. Elizur's Scaling Method of Job Evaluation is one such method.27 It reportedly has the additional advantage of meeting the requirements of a Guttman scale. The Factor Evaluation System (FES) developed for federal pay grades 1-15 can also be considered a total organizational plan.28 Such plans can be expected to become increasingly popular, in view of the conclusion of a National Science Foundation study that they permit the job comparisons needed to eliminate pay discrimination.29
An apparently increasingly popular job evaluation technique is to use a standardized job analysis questionnaire. For example, the Position Analysis Questionnaire (PAQ)30 discussed in the previous chapter, has been used in numerous organizations for policy capturing the job dimensions by regressing them against wage rates for jobs. Although only nine of the PAQ elements are typically used for job evaluation, they are very similar to those found in traditional plans. Nationwide Insurance developed a job-content questionnaire and used it in this way.31 Pact, Inc., of Glendale, California, has developed a comprehensive questionnaire called EvaluRate. The Management Position Description Questionnaire (MPDQ) has been used as a job evaluation plan in a number of organizations. Interestingly, however, Gomez-Mejia, Page, and Tornow found with 657 positions that traditional job evaluation systems were at least as valid and more accepted by supervisors and job incumbents.32
The expanding use of computers has undoubtedly encouraged such plans. One consultant (Newpher and Company of Oakbrook, Illinois) offers a standardized job analysis questionnaire with 100 variables and a choice of four job evaluation plans derived from the database provided.
Some job evaluation plans actually rely almost entirely on labor-market information. The guideline method of job evaluation, for example, collects market-pay information on a large proportion of the organization's jobs and compares the "market rate" with a schedule of pay grades constructed on 5 percent intervals. The schedules include midpoints and ranges of 30 to 60 percent. Job evaluation consists of matching market rates to the closest midpoint. Adjustments of one or two grades may be made to accommodate internal relationships. Key jobs are placed into grades and the remaining jobs positioned by comparison with them.33
METHODS
The next step in the job evaluation process is to select or design a method of evaluating jobs. Four basic methods have traditionally been said to describe most of the numerous job evaluation systems: ranking, classification, factor comparison, and the point plan. The dimensions that distinguish these methods are (1) qualitative versus quantitative, (2) job-to-job versus job-to-standard comparison, and (3) consideration of total job versus separate factors that when summed make up the job. These four methods as listed here, may be thought of as increasing in specificity of comparison. Ranking involves creating a hierarchy of jobs by comparing jobs on a global factor that presumably combines all parts of the job. The classification method defines categories of jobs and slots jobs into these classes. Factor comparison involves job-to job comparisons on several specific factors. The point method compares jobs on rating scales of specific factors.
These four basic methods are pure types. In practice there are numerous combinations. Also, there are (as mentioned) many ready-made plans as well as numerous adaptations of these plans to specific organization needs. The following sections describe these basic plans and provide some examples.
JOB RANKING
As its name implies, this method ranks the jobs in an organization from highest to lowest. It is the simplest of the job evaluation methods and the easiest to explain. Another advantage is that it usually takes less time and so is less expensive.
Its primary disadvantage is that its use of adjacent ranks suggests that there are equal differences between jobs, which is very unlikely. Other disadvantages stem from the way the method is often used. For example, ranking can be done without first securing good job descriptions. This approach can succeed only if evaluators know all the jobs, which is virtually impossible in an organization with many jobs or with frequently changing jobs.
Another disadvantage is that rankers are asked to keep the "whole job" in mind and merely rank the jobs. This undoubtedly results in different bases of comparison among raters. It also permits raters, whether they realize it or not, to be influenced by such factors as present pay rates, competence of job incumbents, and prestige of the job. This difficulty can be overcome by selecting and defining one or more compensable factors and asking raters to use them as bases of job comparison. Even then, unfortunately, factor definitions are often so general that rankings are highly subjective.
If the ranking method is used in accordance with the process described in the next section, it may yield the advantages cited and minimize the disadvantages. Developing a job ranking consists of the following steps:
1. Obtain Job Information. As we have noted, the first step in job evaluation is job analysis. Job descriptions are prepared, or secured if already available.
2. Select Raters and Jobs to Be Rated. Raters who will attempt to make unbiased judgments are selected and trained in the rating procedure. Less training is required for ranking than for other methods of job evaluation. If job descriptions are available, it is unnecessary to select as raters only those people who know all the jobs well; this is probably impossible anyway except in very small organizations. If all the jobs in the organization are to be ranked, it may be wise to start with key jobs. Another approach is to rank jobs by department and later combine the rankings.
3. Select Compensable Factor(s). Although ranking is referred to as a "whole-job" approach, different raters may use different attributes to rank jobs. If judgments are to be comparable, compensable factors must be selected and defined. Even as broad a factor as job difficulty or importance is sufficient, so long as it is carefully defined in operational terms. Seeing that raters understand the factors on which jobs are to be compared will help ensure that rankings are made on that factor.
4. Rank Jobs. Although straight ranking is feasible for a limited number of jobs (20 or less), alternation ranking or paired comparison tends to produce more consistent results. Straight ranking involves ordering cards (one for each job) on which job titles or short job briefs have been written. In case more information is needed by raters, it is useful to have the actual job description at hand. Alternation ranking provides raters with a form on which a list of job titles to be ranked are recorded at the left and an equal number of blanks appear at the right. The raters are asked to record at the top of the right-hand column the job title they adjudge the highest, and cross out that title in the list to the left. Then they record the lowest job in the bottom blank and the remaining jobs in between, crossing out the job titles from the left-hand list along the way. In paired comparison, raters compare all possible pairs of jobs. One way to do this is with a pack of cards on which job titles have been recorded, as in straight ranking. Raters compare each pair of jobs at least once. The card of the job adjudged higher is checked after each comparison. After all comparisons have been made, the raters list the jobs, starting with the job with the most check marks and ending with the job with the least. A similar approach is to use a matrix like the one in Figure 14-5. For each cell in the matrix, the raters provide a check if the job listed on the left is higher than its counterpart on the top. The number of times a job is checked (tabulated in the "Total" column on the right) indicates its rank. Although this method of comparing pairs of jobs is less cumbersome, the number of comparisons increases rapidly with the number of jobs. The number of comparisons may be computed as (n)(n – 1) ÷ 2.
5. Combine Ratings. It is advisable to have several raters rank the jobs independently. Their rankings are then averaged, yielding a composite ranking that is sufficiently accurate.
Although job ranking is usually assumed to be applicable primarily to small organizations, it has been used in large firms as well. Computers make it possible to use paired comparison for any number of raters, jobs, and even factors. But the other disadvantages remain. Unless job ranking is based on good job descriptions and at least one carefully defined factor, it is difficult to explain and justify in work-related terms. Although the job hierarchy developed by ranking may be better than paying no attention at all to job relationships, the method's simplicity and low cost may produce results of less than the needed quality.
Figure 14-5 A job comparison matrix
Job Classification
The classification method involves defining a number of classes or grades of jobs and fitting jobs into them. It would be like sorting books among a series of carefully labeled shelves in a bookcase. The primary task is to describe each of the classes so that no difficulty is experienced in fitting each job into its proper niche. Jobs are then classified by comparing each job with the class description provided.
Advantages
The major advantage of this method is that most organizations and employees tend to classify jobs. It may therefore be relatively easy to secure agreement about the classification of most jobs. The classification method also promotes thinking about job classes among both managers and employees. If jobs are thought of as belonging in a certain grade, many problems of compensation administration become easier to solve. In fact most organizations classify jobs into grades to ease the task of building and operating pay structures. When jobs are placed into grades or classes subsequent to job evaluation by any method (or even by informal decision) those grades often become the major focus of compensation administration. When jobs change or new jobs emerge, they may be placed in the job structure by decision or negotiation. It may be necessary to use formal job evaluation only infrequently, if agreement cannot be reached without it.
Perhaps the greatest advantage of the method is its flexibility. Although classification is usually said to be most useful for organizations with relatively few jobs, it has long been used successfully by the largest organization in the world, the United States government. In fact, it is the primary job evaluation method of most levels of government in the United States, as well as of many large private organizations. In these organizations, millions of kinds and levels of jobs have been classified successfully.
Advocates of classification hold that job evaluation by any method involves much judgment. They also believe that classification can be applied flexibly to all kinds and levels of jobs, while being sufficiently precise to achieve management and employee acceptance, as well as organization purposes. Although the federal government adopted the Factor Evaluation System (a point-factor method, discussed later) in 1975 as an easier way of assigning jobs to GS grades 1-15, many local governments continue to use the classification method.
Disadvantages
Disadvantages of classification include (1) the difficulty of writing grade level descriptions and (2) the judgment required in applying them. Because the classification method considers the job as a whole, compensable factors, although used in class descriptions, are unweighted and unscored. This means that the factors have equal weight, and a little of one may be balanced by much of another. Terms that express the degree of compensable factors in jobs are depended on to distinguish one grade from another. It is quite possible that a given grade could include some jobs requiring high skill and other jobs requiring little skill but carrying heavy responsibility.
It is even possible under the federal classification system for a job to fit into one grade on one factor but a different grade on another. In fact, the system employs both the use of higher levels of a factor and additional factors in descriptions of higher grades. These features cause little trouble because of the federal career system. But private organizations would probably have trouble justifying and gaining acceptance of such results.
Steps
Classification methods customarily employ a number of compensable factors. These typically emphasize the difficulty of the work but also include performance requirements. The terms used in grade descriptions to distinguish differing amounts of compensable factors necessarily require judgment. For example, distinguishing between simple, routine, varied, and complex work and between limited, shared, and independent judgment is not automatic. While the judgment involved in such distinctions may produce the flexibility just cited as an advantage, it may also encourage managers to use inflated language in job descriptions and job titles to manipulate the classification of jobs. Developing a job classification system requires these steps:
1. Obtain Job Information. If it is to function properly, classification, like all other job evaluation methods, must start with job analysis. A description is developed for each job. Sometimes key jobs are analyzed first and their descriptions used in developing grade descriptions; then the other jobs are analyzed and graded.
2. Select Compensable Factors. Job descriptions are reviewed to distill factors that distinguish jobs at different levels. This is often done by selecting key jobs at various levels of the organization, ranking them, and seeking the factors that distinguish them. Obviously, the factors must be acceptable to management and employees.
3. Determine the Number of Classes. The number of classes selected depends upon tradition, job diversity, and the promotion policies of the organization. Organizations tend to follow similar organizations in this decision. Those favoring more classes argue that more grades mean more promotions and employees approve of this. Those favoring fewer classes argue that fewer grades permit more management flexibility and a simpler pay structure. Obviously, diversity in the work and organization size increases the need for more classes.
4. Develop Class Descriptions. This is a matter of defining classes in sufficient detail to permit raters to readily slot jobs. Usually this is done by describing levels of compensable factors that apply to the jobs in a class. Often, titles of benchmark jobs are used as examples of jobs that fall into a grade. Writing grade descriptions is more difficult if one set of classes is developed for the entire organization, than if separate class hierarchies are developed for different occupational groups. More specific class description eases the task of slotting jobs, but also limits the number of jobs that fit into a class. A committee is usually assigned the writing of class descriptions. It is often useful to write the descriptions of the two extreme grades first, then those of the others.
5. Classify Jobs. The committee charged with writing grade descriptions is often also assigned the task of classifying jobs. This involves comparing job descriptions with class descriptions. The result is a series of classes, each containing a number of jobs that are similar to one another. The jobs in each class are considered to be sufficiently similar to have the same pay. Jobs in other classes are considered dissimilar enough to have different pay. Classification systems have been used more in government organizations than in private ones. Most are designed to cover a wide range of jobs and are based on the assumption that jobs will be relatively stable in content. Although classification tends to produce more defensible and acceptable job structures than ranking, it may substitute flexibility for precision. It is easy to understand and communicate, but its results are non-quantitative.
FACTOR COMPARISON
This method, as the name implies, compares jobs on several factors to obtain a numerical value for each job and to arrive at a job structure. Thus it may be classified as a quantitative method.
Factor comparison itself is not widely used: it probably represents less than 10 percent of the installations of job evaluation plans. But the concepts on which it is based are incorporated in numerous job evaluation plans, including the one that is probably used the most, the Hay Plan.
Factor comparison involves judging which jobs contain more of certain compensable factors. Jobs are compared with each other (as in the ranking method), but on one factor at a time. The judgments permit construction of a comparison scale of key jobs against which other jobs may be compared. The compensable factors used are usually (1) mental requirements, (2) physical requirements, (3) skill requirements, (4) responsibility, and (5) working conditions. These are considered to be universal factors found in all jobs. This means that one job-comparison scale for all jobs in the organization may be constructed, and this practice is often followed upon installation of factor comparison. However, separate job-comparison scales can be developed for different functional groups, and other factors can be employed.
Factor-comparison concepts employed in other job evaluation plans should be noted. Job-ranking plans that use two or more compensable factors and weighting them differently are essentially factor-comparison plans. The practice of assigning factor weights statistically on the basis of market rates and the ranking of jobs on the factors employs a factor-comparison concept. The use of universal factors in the Hay plan and a step called profiling (to be discussed later) are factor-comparison ideas. Finally, the use of job titles as examples of factor levels in other job evaluation plans is a factor-comparison concept.
Advantages
A major advantage of factor comparison is that it requires a custom-built installation in each organization. Such a plan may result in a better fit with the organization. Another advantage, according to its developers, is that comparable results accrue whether the plan is installed by management, employee representatives, or a consultant.34 The type of job comparisons utilized by the method is another advantage. Since relative job values are the results sought, comparing jobs with other jobs seems logical. Limiting the number of factors may be another advantage in that this tends to reduce the possibility of overlap and the consequent overweighting of factors.
Still another advantage would seem to be the job-comparison scale. Once employees, union representatives, and managers have been trained in the use of the scale, visual as well as numerical job comparisons are easily made. The use of a monetary unit in the basic method has the advantage of resulting in a wage structure as well as a job structure, thus eliminating the pricing step required in other plans. It is questionable, however, whether this advantage offsets the disadvantage of possible bias introduced by monetary units.
Disadvantages
One disadvantage of the method is its use of "universal" factors. Although, as mentioned it is quite possible for an organization to develop its own compensable factors, factor comparison uses factors with common definitions for all jobs. This means using the same factors for all job families.
The definition of key jobs may be another disadvantage. A major criterion of a key job in factor comparison is the essential correctness of its pay rate. Since key jobs form the basis of the job-comparison scale, the usefulness of the scale depends on the anchor points represented by these jobs. But jobs change, sometimes imperceptibly. When jobs change and when wage rates change over time, the scale must be rebuilt accordingly. Otherwise users are basing their decisions on what might be described as a warped ruler.
The use of monetary units may represent a disadvantage if, as is likely, raters are influenced by whether a job is high-paid or low-paid. An unnecessary possibility of bias would seem to be present when raters use the absolute value of jobs to determine their relative position in the hierarchy.
Finally, the complexity of factor comparison may be a serious disadvantage. Its many complicated steps make it difficult to explain and thus affect its acceptance.
The Basic Method
Several variations in the basic method of factor comparison have appeared in response to one or more of these disadvantages. Understanding these modifications requires an understanding of the basic method. For that reason, it is discussed first.
1. Analyze Jobs. As in other job evaluation methods, the first step is to secure job information. Sometimes only key jobs are analyzed prior to construction of the job-comparison scale. But all jobs to be evaluated are eventually subjected to job analysis. Job descriptions are written in terms of the five universal factors. Note that the factors and their definitions govern the job description. For this reason, the organization will want to determine if its jobs can be described in these terms. It will do this by analyzing some key jobs and deriving compensable factors.
2. Select Key/Jobs. With job information at hand, the job evaluation committee selects 15 to 25 key jobs. This step is critical because the entire method is based upon these jobs. The major criterion for selection, as we have noted, is the essential correctness of the wage rate. However, the jobs should represent the entire range of jobs to be evaluated and be stable in content.
3. Rank Key Jobs. Next, key jobs are ranked on each of the five factors. Committee members individually rank the jobs, then meet as a committee to determine composite ranks. These jobs are called tentative key jobs. They remain tentative until they are eliminated in later steps or become "true" key jobs.
4. Distribute Wage Rates Across Factors. The next step is to decide for each key job how much of its wage rate should be allocated to each factor. This should be done individually and the results merged into one committee allocation.
5. Compare Vertical and Horizontal Judgments. This involves crosschecking the judgments in steps 3 and 4. If a key job is assigned the same position in both comparisons, the judgments reinforce each other. If they do not, that job is not a true key job. Making this comparison may involve ranking the money distribution as well, and then comparing the two ranks. This table identifies jobs that are not true key jobs and that will therefore be eliminated from the scale; and it indicates adjustments in the money distribution that would permit sufficient similarity in rankings to retain a job as a benchmark.
6. Construct the Job-Comparison Scale. The job comparison scale incorporates the corrected money distribution allocations to the key jobs (For an example, see Figure 14-6).
7. Use the Job-Comparison Scale to Evaluate the Remainder of the Jobs. This is done by comparing the job descriptions of nonkey jobs, one factor at a time, with jobs on the scale to determine the relative position. The evaluated wage for each nonkey job is the sum of the allocations to the five factors. Once evaluated, a nonkey job becomes another benchmark to use in evaluating the balance of the jobs.
Variations of the Basic Method
We have seen that factor comparison concepts are used in other job evaluation plans. The potential bias from the use of dollar-and-cent units, for example, has been met by multiplying monetary values by some constant, resulting in points.
Figure 14-6 The Wage Structure Decision
The Percentage Method
This is a more fundamental modification of basic factor comparison. It meets the disadvantage of monetary units and may be used in case of doubt about the corrections of wage rates for key jobs. The percentage method employs vertical and horizontal comparisons of key jobs on factors, as does the basic method. In fact, the two methods are identical in their first three steps. At this point percentages are assigned to the vertical rankings by dividing 100 points on each factor among the key jobs in accordance with their ranks. The money distribution in the basic method becomes a horizontal ranking of the importance of factors in each job. This ranking is also translated into percentages by dividing 100 points among the factors in accordance with their ranks. Comparison of vertical and horizontal percentages involves expressing each percentage as a proportion of a common base. Then either the horizontal or the vertical percentage for each factor in each job, or an average of the two, forms the basis of the job-comparison scale. In practice, the percentages recorded in the scale are usually adjusted from a table of equal-appearing intervals of 15 percent. Hay, who developed the percentage method, argued that 15 percent differences are the minimum observable in job evaluation.35 The job-comparison scale in the percentage method is a ratio scale (equal distances represent equal percentages), but is used in the same way as in the basic method.
Profiling
A profile is a distribution in percentage terms of the importance of factors in a job. 100 percentage points are distributed in accordance with their horizontal rankings. This distribution is used like the percentage method already described.
The Use of Existing Wage Rates to Weight Factors
This can now be considered a concept derived from basic factor comparison. The well-known Steel Plan, for example, was developed by deriving factor (and degree) weights statistically by correlating job rankings by factors with existing wage rates of key jobs.36
The Hay Guide Chart-Profile Method
Undoubtedly the best-known variation of factor comparison, this plan is reportedly used by more than 4,000 profit and nonprofit organizations in some 30 countries.37 It is described by the Hay Group (a team of management consultants) as a form of factor comparison for the following reasons: it uses universal factors, bases job values on 15 percent intervals, and makes job-to-job comparisons. The plan is tailored to the organization. Profiling is used to adjust the guide charts and to check on the evaluation of jobs. The plan may be used for all types of jobs and is increasingly used for all jobs in an organization.
The universal factors in the Hay plan are know-how, problem solving, and accountability. These three factors are broken down into eight dimensions. Know-how (skill) involves (1) procedures and techniques, (2) breadth of management skills, and (3) person-to-person skills. The two dimensions of problem solving are (1) thinking environment and (2) thinking challenge. Accountability has three dimensions: (1) freedom to act, (2) impact on results, and (3) magnitude. A fourth factor, working conditions, is sometimes used for jobs in which hazards, environment, or physical demands are deemed important.
The heart of the Hay Plan is its guide charts use of 15 percent intervals. Although these charts appear to be two-dimension point scales, the Hay Group insists that, except for the problem-solving scale they may be expanded to reflect the size and complexity of the organization. It also states that the definitions of the factors are modified as appropriate to meet the needs of the organization.
Profiling is used to develop the relationship among the three scales and to provide an additional comparison with the points assigned from the guide charts. Jobs are assumed to have characteristic shapes or profiles in terms of problem-solving and accountability requirements. Sales and production jobs, for example, emphasize accountability over problem solving. Research jobs emphasize problem solving more than accountability. Typically, staff jobs tend to equate the two.
Installation consists of (1) studying the organization and selecting and adjusting guide charts, (2) selecting a sample of benchmark jobs covering all levels and functions, (3) analyzing jobs and writing job descriptions in terms of the three universal factors, (4) selecting a job evaluation committee consisting of line and staff managers, a personnel department representative, often employees, and a Hay consultant, and (5) evaluating benchmark jobs and then all other jobs.
Point values from the three guide charts are added, yielding a single point value for each job. Profiles are then constructed and compared on problem solving and accountability, as an additional evaluation.
Note that the Hay plan is independent of the market. Also an organization using the plan must rely heavily on an outside consultant for both installation and maintenance.
POINT-FACTOR METHOD
The point-factor method, or point plan, involves rating each job on several compensable factors and adding the scores on each factor to obtain a point total for a job. A carefully worded rating scale is constructed for each compensable factor. This rating scale includes a definition of the factor, several divisions called degrees (also carefully defined), and a point score for each degree. The rating scales may be thought of as a set of rulers used to measure jobs.
Designing a point plan is complex, but once designed the plan is relatively simple to understand and use. Numerous ready-made plans developed by consultants and associations exist. Existing plans are often modified to fit the organization.
Advantages
Probably the major advantage of the point method is the stability of the rating scales. Once the scales are developed, they may be used for a considerable period. Only major changes in the organization demand a change in scales. Job changes do not require changing scales. Also, point plans increase in accuracy and consistency with use. Because point plans are based on compensable factors adjudged to apply to the organization, acceptance of the results is likely. Factors chosen can be those that the parties deem important. Point plans facilitate the development of job classes or grades. They also facilitate job pricing and the development of pay structures.
Carefully developed point plans facilitate job rating. Factor and degree definitions can greatly simplify the task of raters.
Disadvantages
As mentioned, developing a point plan is complex. There are no universal factors, so these must be developed. Then degree statements must be devised for each of the factors chosen. All this takes time and money. Further, point plans take time to install. Each job must be rated on the scale for each factor, usually by several raters, and the results must be summarized and agreed to. Considerable clerical work is involved in recording and collating all these ratings. Much of this time and cost, however, can be reduced by using a ready-made plan.
Steps
The steps in building a point-factor plan are as follows:
1. Analyze Jobs. As in all other job evaluation methods, this step comes first. All jobs may be analyzed at this point, or merely a sample of benchmark jobs to be used to design the plan. A job description is written for each job analyzed.
2. Select Compensable Factors. When job information is available, compensable factors are selected. Although the yardsticks on which jobs are to be compared are important in all job evaluation methods, they are especially important in the point-factor method. Because a number of factors are used, they must be the ones for which the organization is paying.
3. Define Compensable Factors. Factors must be defined in sufficient detail to permit raters to use them as yardsticks to evaluate jobs. Such definitions are extremely important because the raters will be referring to them often during their evaluations. When the factors chosen are specific to the organization, the task of defining them is less difficult. Also, it is often argued that definitions may be more precise when the plan is developed for one job family or function. There seems to be a growing tendency to define factors in more detail. See figure 14-7 for an example.
4. Determine and Define Factor Degrees. As we have noted, the rating scale for each factor consists of divisions called degrees. Determining these degrees would be like determining the inch marks on a ruler. It is necessary first to decide the number of divisions, then to ensure that they are equally spaced or represent known distances, and finally to see that they are carefully defined. The number of degrees depends on the actual range of the factors in the jobs. If, for example, working conditions are seen to be identical for most jobs, and if jobs that differ from the norm have very similar working conditions, then it is sufficient to have no degrees. If, on the other hand, seven or even more degrees are discernible, that number of degrees is specified.
A major problem in determining degrees is to make each degree equidistant from the two adjacent degrees. This problem is solved in part by selecting the number of degrees actually found to exist and in part by careful definition of degrees. Decision rules such as the following are useful:
1. Limit degrees to the number necessary to distinguish between the jobs.
2. Use terminology that is easy to understand.
3. Use standard job titles as part of degree definitions.
4. Make sure that the applicability of the degree to the job is apparent.
5. Determine Points for Factors and Degrees. Only rarely are compensable factors assigned equal weight. It is usually determined that some factors are more important than others and should bear more weight.
Factor weights may be assigned by committee judgment or statistically. In the committee approach, the procedure is to have committee members (1) carefully study factor and degree definitions, (2) individually rank the factors in order of importance, (3) agree on a ranking, (4) individually distribute 100 percent among the factors, and (5) once more reach agreement. The result is a set of factor weights representing committee judgment. The weights thereby reflect the judgments of organization members and may contribute to acceptance of the plan.
The committee may then complete the scale by assigning points to factors and degrees. Next a decision is usually made on the total points possible in the plan -- say 1000. Applying the weights just assigned to this total yields the maximum value for each factor. For example, a factor carrying 30 percent of the weight has a maximum value of 300 points. Thus the highest degree of this factor carries 300 points. Assigning points to the other degrees may be done by either arithmetic or geometric progression. In the former, increases are in equal numbers of points from the lowest to the highest degree. In the latter, increases are in equal percentage of points. Arithmetic progression is found in most point plans, especially those designed for one job family rather than the entire organization. But just as different factors usually have different numbers of degrees, some factors may employ geometric progression.
Because it is usually assumed that all jobs include some of a factor, the lowest degree is usually assigned some points. A simple way of assigning points to degrees is as follows:
1. Set the highest degree of a factor by multiplying the weight of the factor by the total possible points.
2. Set the minimum degree of the factor using the arithmetic or percentage increase figure.
3. Subtract these two figures.
4. Divide the result by the number of steps (numbers of degrees minus one).
Add this figure successively to the lowest degree.
The result of this procedure is an arithmetic progression. Using logarithms and following the same calculations produces a geometric progression.
In the statistical approach to weighting factors, benchmark jobs are evaluated and the points assigned are correlated with an agreed-upon set of wage rates. Regressing this structure of pay rates on the factor degrees assigned each job yields weights that will produce scores closely matching the agreed-upon wage rates. Factor weights were developed statistically in the Steel Plan, which we mentioned in our discussion of factor comparison. The same approach is used to develop weights for factors derived from quantitative job analysis. The statistical approach is often called the policy-capturing approach.
Whether developed by committee decision or by the statistical method, the rating scales are often tested by evaluating a group of benchmark jobs. If the results are not satisfactory, several adjustments are possible. Benchmark jobs may be added or deleted. Degrees assigned to jobs may be adjusted. The criterion -- the pay structure -- may be changed; or the weights assigned to factors may be changed. In any of these ways, the job evaluation plan is customized to the jobs and the organization.
6. Write a Job Evaluation Manual. A job evaluation manual conveniently consolidates the factor and degree definitions and the point values (the yardsticks to be used by raters in evaluating jobs). It should also include a review procedure for cases where employees or managers question evaluations of certain jobs. Usually the compensation specialist conducts such reevaluations, but sometimes the assistance of the compensation committee is called for.
7. Rate the jobs. When the manual is complete, job rating can begin. Raters use the scales to evaluate jobs. Key jobs have usually been rated previously in the development of the plan. The others are rated at this point. In smaller organizations, job rating may be done by a compensation specialist. In larger firms, committee ratings developed from independent ratings of individual members are usual. As jobs are rated, the rating on each factor is recorded on a substantiating data sheet. This becomes a permanent record of the points assigned to each factor and the reasons for assigning a particular degree of the factor to the job. Substantiating data come from the job description.
Figure 14-7 A Compensable-Factor Definition
FACTOR: KNOWLEDGE
1. Formal Education: Considers the extent or degree to which specialized, technical or general education, as distinguished from working experience, is normally required as a minimum to proficiently perform the duties of the job. Credit for general education or technical and specialized training beyond high school must be carefully substantiated, that it is required and not merely preferred, and that it can be shown to be job related (what the education equips the job holder to do, not what the specific degree or course is)
2. Work Experience: Consider the minimum amount of experience normally required on the job and in related or lower jobs for an average qualified applicant to become proficient.
Statements of experience requirements for jobs involving promotions or transfers from other jobs in the Company should be made in terms indicating the average, typical, or ordinary periods of time actually required in the lower job to qualify for entrance to the job being analyzed (not the average length of time before promotional opportunities occur in the job being analyzed and not the time it took the present incumbent to reach the job).
Similarly, in jobs requiring experience in the same or related jobs gained outside the Company, both the kind and length of such previous experience should be specified.
In determining experience for a particular job, consider only the nature and extent of experience actually required for the proper understanding and performance of all elements of the job. For example, the average employee acquires a general knowledge of many procedures which are not necessary for the particular job, Care must be taken to include under experience required only the type and amount of experience actually required to become proficient on the job.
NOTE: When Education and Experience can be substituted one for the other, total combined years should be distributed for rating purposes on the basis of the division of the time which can be best justified (which represents the most probable "mix").
CAUTION: Although the Knowledge factor closely resembles standards used by companies in setting employment or hiring standards, it should be noted that the evaluation process is a process of comparing relative knowledge requirements between jobs and is not refined to an adequate degree to set hiring standards. In addition, hiring standards are frequently related to equal employment policies and the availability of personnel in the labor market which are not considered directly by the evaluation plan. The plan is concerned only with job values and not the placement of individuals into specific jobs.
Source: Hansen's Job Evaluation Plan for Clerical, Technical, and Production Jobs.
ACCEPTANCE
In this chapter we have frequently mentioned the importance of acceptance of job evaluation results by employees and managers. One way of testing acceptance is a formal appeals process, whereby anyone questioning the evaluation of his or her job may request a reanalysis and reevaluation. Organizations would be wise to include such a process in their job evaluation system. A second option is to include questions about job evaluation in employee attitude surveys.
RELIABILITY
Although evaluating jobs involves a good deal of judgment, few organizations have determined whether different evaluators produce similar results. Not much research has been conducted on the reliability of job evaluation. Early research found that job rating could be improved by a reduction in overlap among factors, good job descriptions, and rater training. Higher reliability results when scale levels, including the use of benchmark jobs, are carefully defined. Familiarity with the jobs also seems to increase reliability.38 A recent study using a common point system confirmed the importance of training raters but found that consensus rating by groups produced reliability rates as high as those of independent ratings in other studies. This study also found that noninteracting groups produced very similar ratings and that access to information besides job descriptions improved the consistency of the ratings.39 These findings suggest that consistent ratings of jobs are much less susceptible to administrative conditions than was previously thought.
VALIDITY
The question of which method is the most valid (yields the best results) depends on the circumstances. Ranking methods yield results in less time and at less cost, but work-relatedness may be difficult to defend and inconsistencies among organizational units are quite possible. Factor comparison involves high cost, complexity, and explanation difficulties. The point and classification methods seem more acceptable to managers and employers.
The question of whether the different methods yield similar results has not been finally answered. Studies suggest that different methods yield similar job hierarchies,40 but a review by Schwab found substantial differences.41
COSTS
Job evaluation involves costs of design and administration and the increased labor costs of installation. Labor-cost effects vary for each installation. Design and administrative costs also vary with the type of plan, the time spent by organization members, and by consulting fees (if any). Setting up a program has been estimated at 0.5 percent of payroll, and administering it, 0.1 percent per year.
DISCRIMINATION ISSUES
Although jobs and logically job evaluations are both color-blind and sexless, job evaluation has been cited as both a potential source of and a solution to discrimination against women and minorities. Discrimination may result from multiple job evaluation plans in the organization, from the choice or weighting of factors, and from stereotypes attached to jobs.
While more research is needed, the evidence so far does not establish the existence of discrimination in job analysis and job evaluation. A 1977 study found no evidence of sex discrimination in the use of the PAQ.42 A study at San Diego State University replicating the 1977 study but using other methods of job analysis found no sex bias either.43 Other studies, however, have found influence from sex stereotyping and sex composition of jobs.44
The National Science Foundation study cited previously maintains that job evaluation may be a solution to problems of pay discrimination.45 But it suggests that single rather than multiple plans would help and that factors should represent all jobs and be defined without bias. It also suggests some ways of weighting factors to remove potential sex bias. These views will be discussed in more detail in chapter 26.
SUMMARY
The first step in developing a wage structure based upon jobs is to collect information on jobs. This is the function of job analysis. The end product of this collection and analysis is a job description. This document becomes important not only for developing a wage structure but for almost all Human Resource functions.
There is little commonality as to what information to include in job analysis or how to go about collecting such information. This chapter suggests that the information collected needs to focus on what the job is, how it is done, and why it is done. This approach suggests a focus on the activities of the worker as opposed to the worker's traits or the responsibilities the organization sees in the job.
Methods for collecting job information vary greatly from very informal to highly structured questionnaires. However, the most common method of collecting data is the interview. This leaves the data collection process flexible but subject to great variation. The use of the computer in the future will probably increase the standardization of the data collection process.
The second step toward a wage structure is job evaluation. This is the process by which the organization develops a job structure. The job structure is the hierarchy of jobs within the organization, ordered according to their value and importance to the organization. Job evaluation involves comparing jobs to each other or to a standard, and then ranking them by the standard of organizational importance.
The first decision to be made in developing a job evaluation plan is to decide on the factors that account for the importance of jobs to the organization, called compensable factors. Second, a decision must be made as to what jobs will be placed into the job evaluation plan -- all jobs in the organization or some sub-set of jobs. Third, a decision needs to be made as to the type of job evaluation plan that will provide the organization with the best results. Here the organization has a number of choices that have been reviewed in this chapter.
Job evaluation plans are categorized as being either non-quantitative or quantitative. Non-quantitative plans, ranking or classification, rate the job as a whole, clearly rely on the judgments of the evaluator, and are generally simpler and more flexible. These non-quantitative plans are used mainly in small organizations and governmental units. Quantitative plans, factor comparison and point factor, evaluate the job by the use of factors. These are more difficult to set up, provide a basis for determining their accuracy, and are more popular in industry.
Job evaluation has a basic dilemma. On one hand, it is a technical function that requires training and expertise to perform. On the other hand, the usefulness of job evaluation depends on the acceptance by management and employees of the job structure that results from the process. The best way to obtain acceptance is to allow managers and employees a role in the decision making that creates the job structure. Too often, job evaluation is seen by managers and employees as some mysterious, incomprehensible process that has a considerable impact on their wages.
AN INTERNET APPLICATION
HTTP://WWW.HR-SOFTWARE.NET/CGI/JOBEVALUATION.CGI
JOB EVALUATION METHODS
There are three basic methods of job evaluation: (1) ranking, (2) classification, (3) factor comparison. While many variations of these methods exist in practice, the three basic approaches are described here.
Ranking Method
Perhaps the simplest method of job evaluation is the ranking method. According to this method, jobs are arranged from highest to lowest, in order of their value or merit to the organization. Jobs also can be arranged according to the relative difficulty in performing them. The jobs are examined as a whole rather than on the basis of important factors in the job; and the job at the top of the list has the highest value and obviously the job at the bottom of the list will have the lowest value.
Jobs are usually ranked in each department and then the department rankings are combined to develop an organizational ranking. The following table is a hypothetical illustration of ranking of jobs.
Table: Array of Jobs according to the Ranking Method
Rank Monthly salaries
1. Accountant Rs 3,000
2. Accounts clerk Rs 1,800
3. Purchase assistant Rs 1,700
4. Machine-operator Rs 1,400
5. Typist Rs 900
6. Office boy Rs 600
The variation in payment of salaries depends on the variation of the nature of the job performed by the employees. The ranking method is simple to understand and practice and it is best suited for a small organization. Its simplicity, however, works to its disadvantage in big organizations because rankings are difficult to develop in a large, complex organization. Moreover, this kind of ranking is highly subjective in nature and may offend many employees. Therefore, a more scientific and fruitful way of job evaluation is called for.
Classification Method
According to this method, a predetermined number of job groups or job classes are established and jobs are assigned to these classifications. This method places groups of jobs into job classes or job grades. Separate classes may include office, clerical, managerial, personnel, etc. Following is a brief description of such a classification in an office.
(a) (a) Class I - Executives: Further classification under this category may be Office manager, Deputy office manager, Office superintendent, Departmental supervisor, etc.
(b) (b) Class II - Skilled workers: Under this category may come the Purchasing assistant, Cashier, Receipts clerk, etc.
(c) (c) Class III - Semiskilled workers: Under this category may come Stenotypists, Machine-operators, Switchboard operators, etc.
(d) (d) Class IV - Semiskilled workers: This category comprises Daftaris, File clerks, Office boys, etc.
The job classification method is less subjective when compared to the earlier ranking method. The system is very easy to understand and acceptable to almost all employees without hesitation. One strong point in favor of the method is that it takes into account all the factors that a job comprises. This system can be effectively used for a variety of jobs.
The weaknesses of the job classification method are:
Even when the requirements of different jobs differ, they may be combined into a single category, depending on the status a job carries.
It is difficult to write all-inclusive descriptions of a grade.
The method oversimplifies sharp differences between different jobs and different grades.
When individual job descriptions and grade descriptions do not match well, the evaluators have the tendency to classify the job using their subjective judgments.
Factor Comparison Method
A more systematic and scientific method of job evaluation is the factor comparison method. Though it is the most complex method of all, it is consistent and appreciable. Under this method, instead of ranking complete jobs, each job is ranked according to a series of factors. These factors include mental effort, physical effort, skill needed, supervisory responsibility, working conditions and other relevant factors (for instance, know-how, problem solving abilities, accountability, etc.). Pay will be assigned in this method by comparing the weights of the factors required for each job, i.e., the present wages paid for key jobs may be divided among the factors weighed by importance (the most important factor, for instance, mental effort, receives the highest weight). In other words, wages are assigned to the job in comparison to its ranking on each job factor.
The steps involved in factor comparison method may be briefly stated thus:
Select key jobs (say 15 to 20), representing wage/salary levels across the organization. The selected jobs must represent as many departments as possible.
Find the factors in terms of which the jobs are evaluated (such as skill, mental effort, responsibility, physical effort, working conditions, etc.).
Rank the selected jobs under each factor (by each and every member of the job evaluation committee) independently.
Assign money value to each factor and determine the wage rates for each key job.
The wage rate for a job is apportioned along the identified factors.
All other jobs are compared with the list of key jobs and wage rates are determined.
An example of how the factor comparison method works is given below:
Table: Merits and Demerits of Factor Comparison Method
Merits Demerits
Analytical and objective.
Reliable and valid as each job is compared with all other jobs in terms of key factors.
Money values are assigned in a fair way based on an agreed rank order fixed by the job evaluation committee.
Flexible as there is no upper limitation on the rating of a factor.
Difficult to understand, explain and operate.
Its use of the same criteria to assess all jobs is questionable as jobs differ across and within organizations.
Time consuming and costly.
Point method
This method is widely used currently. Here, jobs are expressed in terms of key factors. Points are assigned to each factor after prioritizing each factor in the order of importance. The points are summed up to determine the wage rate for the job. Jobs with similar point totals are placed in similar pay grades. The procedure involved may be explained thus:
(a) Select key jobs. Identify the factors common to all the identified jobs such as skill, effort, responsibility, etc.
(b) Divide each major factor into a number of sub factors. Each sub factor is defined and expressed clearly in the order of importance, preferably along a scale.
The most frequent factors employed in point systems are:
I. I. Skill (key factor): Education and training required, Breadth/depth of experience required, Social skills required, Problem-solving skills, Degree of discretion/use of judgment, Creative thinking;
II. II. Responsibility/Accountability: Breadth of responsibility, Specialized responsibility, Complexity of the work, Degree of freedom to act, Number and nature of subordinate staff, Extent of accountability for equipment/plant, Extent of accountability for product/materials;
III. III. Effort: Mental demands of a job, Physical demands of a job, Degree of potential stress.
The educational requirements (sub factor) under the skill (key factor) may be expressed thus in the order of importance.
Degree Define
1. Able to carry out simple calculations; High School educated
2. Does all the clerical operations; computer literate; graduate
3 Handles mail, develops contacts, takes initiative and does work independently; post graduate
Assign point values to degrees after fixing a relative value for each key factor.
Table: Point Values to Factors along a Scale
Point values for Degrees Total
Factor 1 2 3 4 5
Skill 10 20 30 40 50 150
Physical effort 8 16 24 32 40 120
Mental effort 5 10 15 20 25 75
Responsibility 7 14 21 28 35 105
Working conditions 6 12 18 24 30 90
Maximum total points of all factors depending on their importance to job = 540
(Bank Officer)
4 Find the maximum number of points assigned to each job (after adding up the point values of all sub-factors of such a job). This would help in finding the relative worth of a job. For instance, the maximum points assigned to an officer’s job in a bank come to 540. The manager’s job, after adding up key factors + sub factors’ points, may be getting a point value of, say 650 from the job evaluation committee. This job is now priced at a higher level.
5 Once the worth of a job in terms of total points is expressed, the points are converted into money values keeping in view the hourly/daily wage rates. A wage survey, usually, is undertaken to collect wage rates of certain key jobs in the organization. Let’s explain this:
Table: Conversion of Job Grade Points into Money Value
Point range Daily wage rate (Rs) Job grades of key bank officials
500-600 300-400 1 Officer
600-700 400-500 2 Accountant
700-800 500-600 3 Manager I Scale
800-900 600-700 4 Manager II Scale
900-1,000 700-800 5 Manager III Scale
Merits and Demerits
The point method is a superior and widely used method of evaluating jobs. It forces raters to look into all keys factors and sub-factors of a job. Point values are assigned to all factors in a systematic way, eliminating bias at every stage. It is reliable because raters using similar criteria would get more or less similar answers. “The methodology underlying the approach contributes to a minimum of rating error” (Robbins, p.361). It accounts for differences in wage rates for various jobs on the strength of job factors. Jobs may change over time, but the rating scales established under the point method remain unaffected.
On the negative side, the point method is complex. Preparing a manual for various jobs, fixing values for key and sub-factors, establishing wage rates for different grades, etc., is a time consuming process. According to Decenzo and Robbins, “the key criteria must be carefully and clearly identified, degrees of factors have to be agreed upon in terms that mean the same to all rates, the weight of each criterion has to be established and point values must be assigned to degrees”. This may be too taxing, especially while evaluating managerial jobs where the nature of work (varied, complex, novel) is such that it cannot be expressed in quantifiable numbers.
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JOB ANALYSIS: OVERVIEW
Job Analysis is a process to identify and determine in detail the particular job duties and requirements and the relative importance of these duties for a given job. Job Analysis is a process where judgements are made about data collected on a job.
The Job; not the person An important concept of Job Analysis is that the analysis is conducted of the Job, not the person. While Job Analysis data may be collected from incumbents through interviews or questionnaires, the product of the analysis is a description or specifications of the job, not a description of the person.
Purpose of Job Analysis
The purpose of Job Analysis is to establish and document the 'job relatedness' of employment procedures such as training, selection, compensation, and performance appraisal.
Determining Training Needs
Job Analysis can be used in training/"needs assessment" to identify or develop:
• training content
• assessment tests to measure effectiveness of training
• equipment to be used in delivering the training
• methods of training (i.e., small group, computer-based, video, classroom...)
Compensation
Job Analysis can be used in compensation to identify or determine:
• skill levels
• compensable job factors
• work environment (e.g., hazards; attention; physical effort)
• responsibilities (e.g., fiscal; supervisory)
• required level of education (indirectly related to salary level)
Selection Procedures
Job Analysis can be used in selection procedures to identify or develop:
• job duties that should be included in advertisements of vacant positions;
• appropriate salary level for the position to help determine what salary should be offered to a candidate;
• minimum requirements (education and/or experience) for screening applicants;
• interview questions;
• selection tests/instruments (e.g., written tests; oral tests; job simulations);
• applicant appraisal/evaluation forms;
• orientation materials for applicants/new hires
Performance Review
Job Analysis can be used in performance review to identify or develop:
• goals and objectives
• performance standards
• evaluation criteria
• length of probationary periods
• duties to be evaluated
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Methods of Job Analysis
Several methods exist that may be used individually or in combination. These include:
• review of job classification systems
• incumbent interviews
• supervisor interviews
• expert panels
• structured questionnaires
• task inventories
• check lists
• open-ended questionnaires
• observation
• incumbent work logs
A typical method of Job Analysis would be to give the incumbent a simple questionnaire to identify job duties, responsibilities, equipment used, work relationships, and work environment. The completed questionnaire would then be used to assist the Job Analyst who would then conduct an interview of the incumbent(s). A draft of the identified job duties, responsibilities, equipment, relationships, and work environment would be reviewed with the supervisor for accuracy. The Job Analyst would then prepare a job description and/or job specifications.
The method that you may use in Job Analysis will depend on practical concerns such as type of job, number of jobs, number of incumbents, and location of jobs.
What Aspects of a Job Are Analyzed?
Job Analysis should collect information on the following areas:
• Duties and Tasks The basic unit of a job is the performance of specific tasks and duties. Information to be collected about these items may include: frequency, duration, effort, skill, complexity, equipment, standards, etc.
• Environment This may have a significant impact on the physical requirements to be able to perform a job. The work environment may include unpleasant conditions such as offensive odors and temperature extremes. There may also be definite risks to the incumbent such as noxious fumes, radioactive substances, hostile and aggressive people, and dangerous explosives.
• Tools and Equipment Some duties and tasks are performed using specific equipment and tools. Equipment may include protective clothing. These items need to be specified in a Job Analysis.
• Relationships Supervision given and received. Relationships with internal or external people.
• Requirements The knowledges, skills, and abilities (KSA's) required to perform the job. While an incumbent may have higher KSA's than those required for the job, a Job Analysis typically only states the minimum requirements to perform the job.
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JOB ANALYSIS: JOB CLASSIFICATION SYSTEMS
Dictionary of Occupational Titles (alternate website; site 2)
The Dictionary of Occupational Titles (DOT) was developed in response to the demand for standardized occupational information to support an expanding public employment service. The U.S. Employment Service established a Federal-State employment service system, and initiated an occupational research program, utilizing analysts located in numerous field offices throughout the country, to collect the information required. The use of this information has expanded from job matching applications to various uses for employment counseling, occupational and career guidance, and labor market information services.
In order to properly match jobs and workers, the public employment service system requires that a uniform occupational language be used in all of its local job service offices. Occupational analysts collect data provided to job interviewers to systematically compare and match the specifications of employer job openings with the qualifications of applicants who are seeking jobs through its facilities.
The first edition of the DOT, published in 1939, contained approximately 17,500 job definitions. Blocks of jobs were assigned 5- or 6-digit codes which placed them in one of 550 occupational groups and indicated whether the jobs were skilled, semi-skilled, or unskilled.
The latest edition of the DOT published in 1977, contained over 2,100 new occupational definitions and several thousand other definitions were substantially modified or combined with related definitions. In order to document these changes, approximately 75,000 on-site job analysis studies were conducted from 1965 to the mid-1970's. These studies, supplemented by information obtained through extensive contacts with professional and trade associations, reflected the restructuring of the economy at that time.
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Australian Standard Classification of Occupations The Australian Standard Classification of Occupations (ASCO) is a skill-based classification of occupations which used as the Australian national standard for producing and analyzing labor force statistics, human resource management, and the listing of job applicants and vacancies. This system classifies jobs according to skill level (e.g., the amount of formal education, on-the-job training and previous experience necessary to perform the job) and skill specification (e.g., the knowledge required, the tools and equipment used, the materials worked on and the goods and services produced).
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O*NET The Occupational Information Network, encompases changes to the DOT in terms that reflect the latest research in the field of job analysis. By identifying and describing the key components of modern occupations, O*NET supplies up-dated information critical to the effective training, education, counseling and employment of workers. O*NET contains data describing over 1,100 occupations. O*NET also contains linkages that crosswalk O*NET occupational titles to eight other classification systems (DOT, MOS, OPM, etc.). O*NET uses "Occupational Profiles" to give a short overview of the most important data descriptions on each occupation.
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U.S. STANDARD OCCUPATIONAL CLASSIFICATION SYSTEM
THE OCCUPATIONAL CLASSIFICATION SYSTEM MANUAL WAS CREATED FOR BUREAU OF LABOR STATISTICS (BLS) FIELD ECONOMISTS TO HELP ENSURE CORRECT OCCUPATIONAL MATCHES WHEN COLLECTING COMPENSATION DATA. AVAILABLE TO THE PUBLIC, THIS MANUAL ALLOWS THE USER TO LOOKUP JOB DESCRIPTIONS FOR OCCUPATIONS FOUND IN THE NCS BULLETINS AND IS USED BY FIELD ECONOMISTS IN THE CLASSIFICATION OF THOUSANDS OF OCCUPATIONS.
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JOB ANALYSIS: JOB DESCRIPTIONS
Job descriptions, as a management tool, can greatly simplify an organization's human resource management.
A job description clarifies work functions and reporting relationships, helping employees understand their jobs. Job descriptions aid in maintaining a consistent salary structure. Performance evaluations may be based on job descriptions.
Well written duty statements contain action words which accurately describe what is being done.
Duty statements should focus on primary, current, normal, daily duties and responsibilities of the position (not incidental duties, an employee’s qualifications or performance, or temporary assignments). Related or similar duties should be combined and written as one statement.
Each duty statement should be a discreet, identifiable aspect of the work assignment, described in one to three sentences, and should be outcome-based, allowing for alternate means of performing the duty, changes in technology, preferences of employees and supervisors, and accommodations of workers with disabilities, without altering the nature of, and/or the duty itself.
Examples of duty statements are:
• Compiles reports on a quarterly basis to ...
• Adjusts height of lathe tool ...
• Drives tractor to worksite ...
• Opens valve to flush pipe.
• Listens to customer at counter.
• Compares department expenses with budget...
Duty statements typically contain three parts: 1) the Verb, the Object, and a Purpose. Examples of these parts of duty statements are shown below:
Verb Object Purpose
Collects financial data to evaluate budget requests.
Conducts analytical studies to support financial planning.
Compiles enrollment data for distribution to administrators.
Cleans computer equipment in conformance with established schedules.
Drives pickup truck carrying motor fuels to job sites.
Overhauls and repairs equipment daily, or as needed.
A form, such as the one below may help in identifying the necessary information to create duty statements.
Worksheet for task statements
Who? Performs what action? To whom or what? Using what tools, equipment, methods? To achieve what result?
Subject Action Verbs Object of verb Phrase In order to...
the worker
Task statement
Job Analysis answers the following important questions:
• What tools, materials, and equipment are used to perform the tasks in the job?
• What methods or processes are used to perform the tasks in the job?
• What are the specific duties for the position? This puts the position in context and spells out broad responsibilities.
• What are the critical tasks and key result areas of the position? The question helps to isolate the most critical activities that the position holder is expected to perform.
• What are the discrete outcomes of the job for which the person appointed will be held accountable and evaluated on?
• What behaviors, skills, knowledge and experience are the most important to the program in achieving the key results and outcomes? This question focuses on the specific personal qualities that are necessary to best meet the job requirements.
The content of job descriptions should identify and describe:
1. Mental Functions
a. COMPARING - Judging the readily observable functional, structural, or compositional characteristics (whether similar to or divergent from obvious standards) of data, people, or things.
b. COPYING - Transcribing, entering, or posting data.
c. COMPUTING - Performing arithmetic operations and reporting on and/or carrying out a prescribed action in relation to them.
d. COMPILING - Gathering, collating, or classifying information about data, people, or things. Reporting and/or carrying out a prescribed action in relation to the evaluation is frequently involved.
e. ANALYZING - Examining and evaluating data. Presenting alternative actions in relation to the evaluation is frequently involved.
f. COORDINATING - Determining time, place, and sequence of operations or action to be taken on the basis of analysis of data. May include prioritizing multiple responsibilities and/or accomplishing them simultaneous-ly.
g. SYNTHESIZING - To combine or integrate data to discover facts and/or develop knowledge or creative concepts and/or interpretations.
2. Relations with Others
a. SUPERVISION (given) - Coordinating and directing the activities of one or more subordinates.
b. SUPERVISION (received) - Independence of actions; authority to determine methods of operation.
c. NEGOTIATING - Exchanging ideas, information, and opinions with others to formulate policies and programs and/or jointly arrive at decisions, conclusions, solutions, or solve disputes.
d. COMMUNICATING - Talking with and/or listening to and/or signaling people to convey or exchange infor-mation; includes giving/receiving assignments and/or directions.
e. INSTRUCTING - Teaching subject matter to others, or training others through explanation, demonstration, and supervised practice; or making recommendations on the basis of technical disciplines.
f. INTERPERSONAL SKILLS/BEHAVIORS - Dealing with individuals with a range of moods and behaviors in a tactful, congenial, personal manner so as not to alienate or antagonize them.
g. CONTROL OF OTHERS - seizing, holding, controlling, and/or otherwise subduing violent, assaultive, or physically threatening persons to defend oneself or prevent injury. Body strength and agility of all four limbs is necessary.
3. Physical Demands (strength)
a. SEDENTARY - Exerts up to 10 lbs. of force occa-sionally and/or a negligible amount of force frequently or constantly to lift, carry, push, pull, or otherwise move objects, including the human body. involves sitting most of the time, but may involve walking or standing for brief periods of time.
b. LIGHT - Exert up to 20 lbs. of force occasionally, and/or up to 10 lbs. of force frequently, and/or a negligi-ble amount of force constantly to move objects. Physical demands are in excess of those of Sedentary work. Light work usually requires walking or standing to a significant degree.
c. MEDIUM - Exert up to 50 lbs. of force occasional-ly, and/or up to 20 lbs. of force frequently, and/or up to 10 lbs. of force constantly to move objects.
d. HEAVY - Exert up to 100 lbs. of force occasionally, and/or up to 50 lbs. of force frequently, and/or up to 20 lbs. of force constantly to move objects.
e. VERY HEAVY - Exert in excess of 100 lbs. of force occasionally, and/or in excess of 50 lbs. of force frequently, and/or in excess of 20 lbs. of force constantly to move objects.
4. Physical Demands (movement)
a. CLIMBING - Ascending or descending using feet and legs and/or hands and arms. Body agility is emphasized.
b. BALANCING - Maintaining body equilibrium to prevent falling on narrow, slippery, or erratically moving surfaces; or maintaining body equilibrium when perform-ing feats of agility.
c. STOOPING - Bending body downward and forward. This factor is important if it occurs to a considerable degree and requires full use of the lower extremities and back muscles.
d. KNEELING - Bending legs at knees to come to rest on knee or knees.
e. CROUCHING - Bending body downward and for-ward by bending legs and spine.
f. CRAWLING - Moving about on hands and knees or hands and feet.
g. REACHING - Extending hand(s) and arm(s) in any direction.
h. HANDLING - Seizing, holding, grasp-ing, turning, or otherwise working with hand or hands. Fingers are involved only to the extent that they are an extension of the hand.
i. FINGERING - Picking, pinching, or otherwise working primarily with fingers rather than with the whole hand or arm as in handling.
j. FEELING - Perceiving attributes of objects, such as size, shape, temperature, or texture, by touching with skin, particularly that of fingertips.
5. Physical Demands (auditory)
a. TALKING - Expressing or exchanging ideas by means of the spoken word. Talking is important for those activities in which workers must impart oral information to clients or to the public, and in those activities in which they must convey detailed or important spoken instructions to other workers accurately, loudly, or quickly.
b. HEARING - perceiving the nature of sounds. Used for those activities which require ability to receive detailed information through oral communication, and to make fine discriminations in sounds, such as when making fine adjustments on running engines.
6. Physical Demands (taste/smell)
a. TASTING/SMELLING - Distinguishing, with a degree of accuracy, differences or similarities in intensity or quality of flavors and/or odors, or recognizing particular flavors and/or odors, using tongue and/or nose.
7. Physical Demands (vision)
a. NEAR ACUITY - Clarity of vision at 20 inches or less. Use this factor when special and minute accuracy is demanded.
b. FAR ACUITY - Clarity of vision at 20 feet or more. Use this factor when visual efficiency in terms of far acuity is required in day and night/dark conditions.
c. DEPTH PERCEPTION - Three-dimensional vision. Ability to judge distances and spatial relationships so as to see objects where and as they actually are.
d. ACCOMMODATION - Adjustment of lens of eye to bring an object into sharp focus. Use this factor when requiring near point work at varying distances.
e. COLOR VISION - Ability to identify and distinguish colors.
f. FIELD OF VISION - Observing an area that can be seen up and down or to right or left while eyes are fixed on a given point. Use this factor when job performance re-quires seeing a large area while keeping the eyes fixed.
8. Environmental Conditions and Physical Surroundings - exposure results in marked bodily discomfort.
a. EXPOSURE TO WEATHER - Exposure to hot, cold, wet, humid, or windy conditions caused by the weather.
b. EXTREME COLD - Exposure to nonweather-related cold temperatures.
c. EXTREME HEAT - Exposure to nonweather-related hot temperatures.
d. WET AND/OR HUMID - Contact with water or other liquids; or exposure to nonweather-related humid conditions.
e. NOISE - Exposure to constant or intermittent sounds or a pitch or level sufficient to cause mark ed distraction or possible hearing loss.
f. VIBRATION - Exposure to a shaking object or surface. This factor is rated important when vibration causes a strain on the body or extremities.
g. ATMOSPHERIC CONDITIONS - Exposure to conditions such as fumes, noxious odors, dusts, mists, gases, and poor ventilation, that affect the respiratory system, eyes or, the skin.
h. CONFINED/RESTRICTED WORKING ENVI-RONMENT - Work is performed in a closed or locked facility providing safety and security for clients, inmates, or fellow workers.
9. Equipment Used
a. office equipment such as computer, typewriter, projector, casette player/recorder.
b. hand tools (e.g., hammer, shovel, screwdriver)
c. power tools (e.g., radial saw, reciprocating saw, drill, pheunomatic hammer)
d. vehicles (e.g., automobile, truck, tractor, lift)
10. Hazards
a. Proximity to moving, mechanical parts.
b. Exposure to electrical shock.
c. Working in high, exposed places.
d. Exposure to radiant energy.
e. Working with explosives.
f. Exposure to toxic or caustic chemicals.
HR GUIDE TO THE INTERNET:
JOB EVALUATION: METHODS: POINT METHOD
Point Method A set of compensable factors are identified as determining the worth of jobs. Typically the compensable factors include the major categories of:
1. Skill
2. Responsibilities
3. Effort
4. Working Conditions
These factors can then be further defined.
1. Skill
1. Experience
2. Education
3. Ability
2. Responsibilities
1. Fiscal
2. Supervisory
3. Effort
1. Mental
2. Physical
4. Working Conditions
1. Location
2. Hazards
3. Extremes in Environment
The point method is an extension of the factor comparison method.
Each factor is then divided into levels or degrees which are then assigned points. Each job is rated using the job evaluation instrument. The points for each factor are summed to form a total point score for the job.
Jobs are then grouped by total point score and assigned to wage/salary grades so that similarly rated jobs would be placed in the same wage/salary grade.
Advantages
• The value of the job is expressed in monetary terms.
• Can be applied to a wide range of jobs.
• Can be applied to newly created jobs. Disadvantages
• The pay for each factor is based on judgments that are subjective.
• The standard used for determining the pay for each factor may have built-in biases that would affect certain groups of employees (females or minorities).
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Tips
Factors Use well defined factors.
Biases Examine the Factor points for inherent biases against females and minorities.
HR GUIDE TO THE INTERNET:
JOB EVALUATION: METHODS: FACTOR COMPARISON
Factor Comparison A set of compensable factors are identified as determining the worth of jobs. Typically the number of compensable factors is small (4 or 5). Examples of compensable factors are:
1. Skill
2. Responsibilities
3. Effort
4. Working Conditions
Next, benchmark jobs are identified. Benchmark jobs should be selected as having certain characteristics.
1. equitable pay (not overpaid or underpaid)
2. range of the factors (for each factor, some jobs would be at the low end of the factor while others would be at the high end of the factor).
The jobs are then priced and the total pay for each job is divided into pay for each factor. See example matrix below:
Job Evaluation: Factor Comparison
The hourly rate is divided into pay for each of the following factors:
Job Hourly Rate . Pay for Skill Pay for Effort Pay for Responsibility Pay for Working Conditions
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Secretary $9.00 4.50 2.00 2.00 0.50
Admin Assistant $11.00 5.50 2.50 2.50 0.50
Supervisor $15.00 6.00 3.50 4.00 1.50
Manager $21.00 9.00 3.50 7.00 1.50
This process establishes the rate of pay for each factor for each benchmark job. Slight adjustments may need o be made to the matrix to ensure equitable dollar weighting of the factors.
The other jobs in the organization are then compared with the benchmark jobs and rates of pay for each factor are summed to determine the rates of pay for each of the other jobs.
Advantages
• The value of the job is expressed in monetary terms.
• Can be applied to a wide range of jobs.
• Can be applied to newly created jobs. Disadvantages
• The pay for each factor is based on judgements that are subjective.
• The standard used for determining the pay for each factor may have build in biases that would affect certain groups of employees (females or minorities).
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Tips
Few Factors Use a few well identifiable factors.
Biases Examine the Factor dollar weights for inherent biases agains females and minorities.
HR GUIDE TO THE INTERNET:
JOB EVALUATION: METHODS: CLASSIFICATION
Classification Jobs are classified into an existing grade/category structure or hierarchy. Each level in the grade/category structure has a description and associated job titles. Each job is assigned to the grade/category providing the closest match to the job. The classification of a position is decided by comparing the whole job with the appropriate job grading standard. To ensure equity in job grading and wage rates, a common set of job grading standards and instructions are used. Because of differences in duties, skills and knowledge, and other aspects of trades and labor jobs, job grading standards are developed mainly along occupational lines.
The standards do not attempt to describe every work assignment of each position in the occupation covered. The standards identify and describe those key characteristics of occupations which are significant for distinguishing different levels of work. They define these key characteristics in such a way as to provide a basis for assigning the appropriate grade level to all positions in the occupation to which the standards apply.
Advantages
• Simple.
• The grade/category structure exists independent of the jobs. Therefore, new jobs can be classified more easily than the Ranking Method.
Disadvantages
• Classification judgments are subjective.
• The standard used for comparison (the grade/category structure) may have built in biases that would affect certain groups of employees (females or minorities).
• Some jobs may appear to fit within more than one grade/category.
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Tips
Use Well Defined Grades/Categories Attempt to define the grades/categories so that they do not overlap one another. Overlaps in the descriptions and factors used to identify the grade would lead to problems when assigning jobs to the grades where there is overlap between them.
Biases Examine the Grades/Categories for inherent biases against females and minorities.
HR GUIDE TO THE INTERNET:
JOB EVALUATION: METHODS: RANKING
Ranking This method is one of the simplest to administer. Jobs are compared to each other based on the overall worth of the job to the organization. The 'worth' of a job is usually based on judgements of skill, effort (physical and mental), responsibility (supervisory and fiscal), and working conditions.
Advantages
• Simple.
• Very effective when there are relatively few jobs to be evaluated (less than 30). Disadvantages
• Difficult to administer as the number of jobs increases.
• Rank judgements are subjective.
• Since there is no standard used for comparison, new jobs would have to be compared with the existing jobs to determine its appropriate rank. In essence, the ranking process would have to be repeated each time a new job is added to the organization.
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Ranking Methods
1. Ordering Simply place job titles on 3x5 inch index cards then order the titles by relative importance to the organization.
2. Weighting
3. Paired Comparison
Grouping
AFTER RANKING, THE JOBS SHOULD BE GROUPED TO DETERMINE THE APPROPRIATE SLARY LEVELS.
HR GUIDE TO THE INTERNET:
COMPENSATION: SALARY SURVEY: CONDUCTING YOUR OWN
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How do I conduct a salary survey? Comprehensive methodology for conducting salary surveys Use of clear and consistent guidelines for evaluating labor market conditions
Identifying benchmark positions and employers
Goal: To develop a survey process that is streamlined and refined
Goal: To impove the methodology and survey process
1. Roles:
a. Survey Administrator/Advisory Committee - Determines the positions to be included in the survey and the types of information to be collected.
b. Analyst - Responsible for monitoring the progress of survey participants; may perform data entry of survey responses; assists participants in interpreting the survey questionnaire and job descriptions; assists the participants in the process of completing the questionnaire; may assist in interpreting the survey results;
c. Participant - Matches jobs on the survey questionnaire to jobs at the participating institution; may compute average salaries, minimum, or maximum salaries; provides survey response within the specified deadline;
2. Determining 'benchmark' positions
a. Common Classification Standard - Jobs on a survey should be developed using a common classification standard.
b. Sample Job Titles and Descriptions - Demo app at HR.Superb.Net
c. Sources of job titles and descriptions - DOT, SOC, other classification systems.
3. Describing benchmark jobs
Balance between specificity of the description and generalizeability of the job for matching
4. Grouping positions into job families
a. Similarity of functions
b. Hierarchy within job family
5. Defining what data to collect
a. General Participant Information - Name and address of participating institution, number of employees in various categories, measures of fiscal size (Operating Budget; Assets; Annual Revenues; Sales; ...), industry classification/type, ownership (public/private),
b. Contact Information - Name, address, title, phone, fax, and email of person responding to the survey
c. Employment Information - Benefits, working conditions, standard work week, union affiliations, cost of living increases,
d. Job Data including:
1. headcount - Number of incumbents in the job classification
2. average salary - Sum of the salaries of the incumbents divided by the number of incumbents
3. salary ranges - Applies only to those positions with specified minimum and maximum salaries
4. starting salary - may be the same as the minimum salary
5. exempt status
6. bonuses
7. commissions
8. overtime payments
9. reporting relationship
10. relative weights -
e. Designing the questionnaire form and brief job descriptions
f. Assurance of Confidentiality - Before you begin the salary survey, you should examine the measures taken to ensure the confidentiality of the survey participants.
1. Unions - Salary data may be mis-used by union employees to gain bargaining power. Therefore extreme caution must be used when responding to requests by Unions for salary survey data.
2. Survey Analysts - When using analysts to assist in conducting the survey, you may want to reassure the survey participants that the Analysts are sworn to secrecy with regard to the salary data: “Survey Analysts shall exercise discretion when conducting the survey and shall not disseminate information that is proprietary and confidential. Analysts shall not use such information for personal gain.”
3. Results only to Participants - Often times, the survey results are only provided to survey participants. This is one way to increase the participation rate. This also helps reassure participants that the results will not be used by consultants (for monetary gain).
4. Coding of Participant Information - If you report the data for each participant (in addition to averages), one way of helping to ensure confidentiality is to code the participant’s response in the survey results using a alphabetic code. (see example).
g. Access to results?
h. Identification of participants
1. Selection of participants can affect the results.
2. Sources of participants include
1. Local businesses
2. Associations of employers (within one industry)
3. Other salary surveys
4. Previously surveyed companies
3. Criteria for selection of participants
1. Established Businesses - startup's may be under significant fluctuations in salary levels
2. Should be able to provide data on at least 30 employees
3. As much as possible, the participants from the previous years that the survey was conducted should be encouraged to participate. This will improve the reliability of the survey results from one year to the next.
4. Number of Participants If surveying positions with high turnover, dramatically increasing salaries, or large variability in salaries for the same types of jobs, you should try to use a large number of participants to develop more accurate averages
4. Contacting the Participants
Letter sent to Human Resources Manager or Compensation Manager to announce the survey and request participaiton. This letter should include information on the participation deadlines, contact information for answers to questions.
5. Distribution of the survey questionnaire (mail, fax, internet)
1. If the questionnaire is lengthy you may want to mail it only to participants who respond to the initial letter.
2. Mail to the questionnaire either with the initial letter or in response to a reply from the solicited participant.
6. Data Collection
7. Coding of Responses
8. Follow up (phone / email)
1. Non Respondents; Need more time? Deadline extension?
2. Incomplete Responses; Missing Data; Failure to report data on common positions
3. Extreme Responses
1. Above ranges
2. Annualized salaries (only reported 10-month rates)
HR GUIDE TO THE INTERNET:
COMPENSATION: SALARY SURVEY
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What are Salary Surveys? Surveys:
1. Gather and summarize information to monitor movement and developments in the labor 'market'.
2. Provide a means for comparison of salaries at the institution
Types of data gathered in a salary survey include:
1. Base salaries
2. Salary Ranges
3. Starting Salary
4. Incentives/Bonuses
5. Allowances and Benefits
6. Working Hours
7. Working Conditions
Where can I find salary surveys? List of on-line survey vendors available at hr-guide.
Associations that conduct surveys of their members.
"Choosing the right survey" and "What to look for in a survey". How do I choose a salary survey? The results of surveys conducted by third parties (e.g., associations, consultants, survey vendors) can be relatively inexpensive compared to the cost of developing the same results your self. Surveys conducted by associations and vendors are often have a large number of participants which results in a more accurate analysis. Before purchasing survey results, you should make sure the results contain:
1. Appropriate Job Titles
industry-specific occupational titles
Little overlap in job titles
Use of titles that don't differentiate/specify the duties performed
2. Summary
3. Methodology Is there a minimum number of responses needed before reporting results? Data should not be reported for too few incumbents. Need to report median salary as well as averages. The mean is the average of all numbers divided by the number of responses. The 'mean' can be affected by extreme values. The median is the midpoint with half of the responses are above that number and half fall below. Please note that in salary data, the median tends to be lower than the mean due to the fact that there is no upper limit to the rates that can be paid for a job. However, the lower limit is zero. Therefore, the distribution of salaries tends to be skewed with a few salaries at the extreme high end of the range. Fact: In salary data, the median will almost always be lower than the mean. Explanation.
4. Tabulation of results by Job Title, public/private, industry, geographic region
5. Breakdowns by size/location/industry
Standard Industrial Classification (SIC) codes:
07 Agricultural services
10, 12-14 Mining
15-17 Construction
20-39 Manufacturing
40-42, 44-49 Transportation, communication, and public utilities (TCPU)
50-59 Wholesale and retail trade
60-65, 67 Finance, insurance, and real estate (FIRE)
70, 72, 73, 75, 76, 78-84, 86, 87, 89 Services
Principles of Compensation Discussed
Use survey results that will match jobs at your organization within the same industry and/or geographic location.
7. Data from comparable institutions (size/location/industry)
Participating in a Survey
1. Identifying the response deadline
2. Matching jobs on the survey questionnaire to your institution - Job matching should be based on several factors:
1. Title - The easiest jobs to match on a survey questionnaire are those in your institution that have an identical job title. All companies have a ‘President’ and at least one Secretary. Most have a Director of Marketing, Director of Human Resources, Director of Information Systems, Director of Facilities.
2. Organizational Structure - The next easiest technique for matching jobs is to find jobs in your organizational structure that match the implied (or even displayed) stucture on the survey. Often a survey will examine the salary data for jobs at several levels within a career path. For example, the jobs Accountant, Senior Accountant, Director of Accounting, Chief Financial Officer may be included in the same survey questionnaire. The structure of two or more jobs within your institution may closely match the structure of jobs on the questionnaire.
3. Job Duties - The most time consuming technique for matching jobs is to match them on the basis of decriptions.
3. Determining what data is needed
1. Salary Ranges
2. Lists of employees by job title with salaries
4. Copying the completed questionnaire before returning
HR GUIDE TO THE INTERNET:
COMPENSATION: INCENTIVE PLANS: ESOP
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Employee Stock Ownership Plan (ESOP): An ESOP is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for. It is an equity based deferred compensation plan. Several features make ESOPs unique as compared to other employee benefit plans. First, only an ESOP is required by law to invest primarily in the securities of the sponsoring employer. Second, an ESOP is unique among qualified employee benefit plans in its ability to borrow money. As a result, "leveraged ESOPs" may be used as a technique of corporate finance.
How does ESOP work?
1. The ESOP operates through a trust, setup by the company, that accepts tax deductible contributions from the company to purchase company stock.
2. The contributions made by the company are distributed to individual employee accounts within the trust.
3. The amount of stock each individual receives may vary according to pre-established formulas based on salary, service, or position.
4. The employees may ‘cash out’ after vesting in the program or when they leave the company. The amount they may cash out may depend on the vesting requirements.
5. When an ESOP employee who has at least ten years of participation in the ESOP reaches age 55, he or she must be given the option of diversifying his/her ESOP account up to 25% of the value. This option continues until age sixty, at which time the employee has a one-time option to diversify up to 50% of his/her account. This requirement is applicable to ESOP shares allocated to employee's accounts after December 31, 1986.
6. Employees receive the vested portion of their accounts at either termination, disability, death, or retirement. These distributions may be made in a lump sum or in installments over a period of years. If employees become disabled or die, they or their beneficiaries receive the vested portion of their ESOP accounts right away.
Advantages
• Capital Appreciation. Companies sell some or all of their equity to employees and by doing so convert corporate and personal taxes into tax-free capital appreciation. This allows the owner to sell 100% of his or her company, get money out tax-free and still maintain control of the company.
• Incentive Based Retirement. Provides a cost-effective plan to motivate employees. After all, who works harder, owners or employees?
• Tax Advantages. Enables tax advantaged purchasing of stock of a retiring company owner. With this purpose, a company owner may sell their shares to the ESOP and incur no taxable gain on the sale. A company owner can sell all or some of the company to the employees cost free. Owners who sell 30% or more of their company to an ESOP are allowed to "roll-over" the proceeds into other securities and defer taxation on the gain.
• Company reduces it's tax liability. A company can reduce its corporate income taxes and increase its cash flow and net worth by simply issuing treasury stock or newly issued stock to its ESOP. Disadvantages
• Dilution. If the ESOP is used to finance the company’s growth, the cash flow benefits must be weighed against the rate of dilution.
• Fiduciary Liability. The plan committee members who administer the plan are deemed to be fiduciaries, and can be held liable if they knowingly participate in improper transactions.
• Liquidity. If the value of the stock appreciates substantially, the ESOP and/or the company may not have sufficient funds to repurchase stock, upon employees’ retirement.
• Stock Performance. If the value of the company does not increase, the employees may feel that the ESOP is less attractive than a profit sharing plan. In an extreme case, if the company fails, the employees will lose their benefits to the extent that the ESOP is not diversified in other investments
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Tips
What is the best way to implement ESOP?
1. Determine how you want to use the ESOP. Will it be used as an employee benefit plan? Or, as an incentive program?
2. Conduct a feasability study to determine the value of the company’s stock and impact of the contributions that must be made to the trust.
3. An ESOP requires different accounting procedures and a different method of allocating stocks and other investments among the employees than other types of plans. For this reason the plan should be designed by an ESOP specialist in order to avoid IRS difficulties.
What are the alternatives to ESOP?
1. Employee stock options.
2. Profit Sharing. An ESOP differs from a profit sharing plan in that an ESOP is required to invest primarily in employer securities, while a profit sharing plan is usually prohibited from investing primarily in employer securities.
Where are ESOP websites?
1. http://www.the-esop-emplowner.org/
2. http://www.cpateam.com/tax-esop.htm
3. http://www.esop.org/info/esop-howto.html
4. http://www.nceo.org/
HR GUIDE TO THE INTERNET:
COMPENSATION: INCENTIVE PLANS: STOCK OPTIONS
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Stock Options: The ‘right’ to purchase stock at a given price at some time in the future. Stock Options come in two types:
1. Incentive stock options (ISOs) in which the employee is able to defer taxation until the shares bought with the option are sold. The company does not receive a tax deduction for this type of option.
2. Nonqualified stock options (NSOs) in which the employee must pay infome tax on the 'spread' between the value of the stock and the amount paid for the option. The company may receive a tax deduction on the 'spread'.
How do Stock options work? An option is created that specifies that the owner of the option may 'exercise' the 'right' to purchase a company’s stock at a certain price (the 'grant' price) by a certain (expiration) date in the future. Usually the price of the option (the 'grant' price) is set to the market price of the stock at the time the option was sold. If the underlying stock increases in value, the option becomes more valuable. If the underlying stock decreases below the 'grant' price or stays the same in value as the 'grant' price, then the option becomes worthless.
They provide employees the right, but not the obligation, to purchase shares of their employer's stock at a certain price for a certain period of time. Options are usually granted at the current market price of the stock and last for up to 10 years. To encourage employees to stick around and help the company grow, options typically carry a four to five year vesting period, but each company sets its own parameters.
Advantages
o Allows a company to share ownership with the employees.
o Used to align the interests of the employees with those of the company. Disadvantages
o In a down market, because they quickly become valueless
o Dilution of ownership
o overstatement of operating income
Nonqualified Stock Options
Grants the option to buy stock at a fixed price for a fixed exercise period; gains from grant to exercise taxed at income-tax rates
Advantages
o Aligns executive and shareholder interests.
o Company receives tax deduction.
o No charge to earnings. Disadvantages
o Dilutes EPS
o Executive investment is required
o May incent short-term stock-price manipulation
Restricted Stock
Outright grant of shares to executives with restrictions to sale, transfer, or pledging; shares forfeited if executive terminates employment; value of shares as restrictions lapse taxed as ordinary income
Advantages
o Aligns executive and shareholder interests.
o No executive investment required.
o If stock appreciates after grant, company's tax deduction exceeds fixed charge to earnings. Disadvantages
o Immediate dilution of EPS for total shares granted.
o Fair-market value charged to earnings over restriction period.
Performance shares/units
Grants contingent shares of stock or a fixed cash value at beginning of performance period; executive earns a portion of grant as performance goals are hit
Advantages
o Aligns executives and shareholders if stock is used.
o Performance oriented.
o No executive investment required.
o Company receives tax deduction at payout. Disadvantages
o Charge to earnings, marked to market.
o Difficulty in setting performance targets.
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Tips
When do Stock options work best?
23. Appropriate for small companies where future growth is expected.
24. For publicly owned companies who want to offer some degree of company ownership to employees.
What are important considerations when implementing Stock Options?
25. How much stock a company be willing to sell.
26. Who will receive the options.
27. How many options are available to be sold in the future.
28. Is this a permanent part of the benefit plan or just an incentive.
HR GUIDE TO THE INTERNET:
COMPENSATION: INCENTIVE PLANS: PROFIT SHARING
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Profit Sharing: An incentive based compensation program to award employees a percentage of the company's profits.
How does Profit sharing work? The company contributes a portion of its pre-tax profits to a pool that will be distributed among eligible employees. The amount distributed to each employee may be weighted by the employee's base salary so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits. Generally this is done on an annual basis.
Advantages
• Brings groups of employees to work together toward a common goal (the success/benefit of the company).
• Helps employees focus on profitability.
• The costs of implementing the plan rise and fall with the company's revenues.
• Enhances commitment to organizational goals. Disadvantages
• The pay for each employee moves up or down together (no individual differences for merit or performance).
• Focuses only on the goal of profitability (which may be at the expense of quality).
• For smaller companies, these plans may result in drastic swings in earnings for employees which the employees may find difficult to manage their personal finances.
• Adherence to the FLSA requires employers to recalculate each worker's "regular rate" of pay. To overcome this limitation, employers may restrict this type of compensation to exempt employees.
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Tips
When does Profit sharing work best? When company earnings are relatively stable (or steadily increasing).
What is the best way to implement Profit sharing? Meet with executives to develop a clear understanding of profit sharing. Develop various formulas and models to be used in predicting future gains and the costs associated with sharing those gains. Prepare rules.
HR GUIDE TO THE INTERNET:
COMPENSATION: INCENTIVE PLANS: GAINSHARING
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Gainsharing: A technique that compensates workers based on improvements in the company's productivity.
How does Gainsharing work? A Company shares productivity gains with the workforce. Workers voluntarily participate in management to accept responsibility for major reforms. This type of pay is based on factors directly under a worker’s control (i.e., productivity or costs). Gains are measured and distributions are made frequently through a predetermined formula. Because this pay is only implemented when gains are achieved, gainsharing plans do not adversely affect company costs.
What are the 'Gains' that are measured?
• Increases in production with equal or less effort.
• Equal levels of production with less effort.
What are examples of Gainsharing formulas?
• Calculate gain in hours: The actual hours worked minus the expected hours (for the given level of output) equals the gain in hours.
Advantages
• Helps companies achieve sustained increases in productivity.
• Employees become more involved the productivity gains made by the employer.
• Employees can share in the benefits of employee sponsored improvements.
• Enhances commitment to organizational goals.
• Leads to improvements in other measures of company performance, including: teamwork, product quality, lower rates of absenteeism, defects, and "downtime." Disadvantages
• Adherence to the FLSA requires employers to recalculate each worker's "regular rate" of pay. To overcome this limitation, employers may restrict this type of compensation to exempt employees.
• The formulas and program may be difficult to understand.
• Requires a shift to a more team oriented management style.
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Tips
When does Gainsharing work best? Works best when company performance levels can be easily quantified. Employee involvement significantly enhances the effectiveness of incentive pay. When used simultaneously, productivity gains from combining these techniques can exceed gains achieved separately.
What is the best way to implement Gainsharing? Meet with executives to develop a clear understanding of Gainsharing. Develop various formulas and models to be used in predicting future gains and the costs associated with sharing those gains. Prepare rules, presentation materials, and dissemination of policy. Retrain supervisors and administrators. Teams of employees are selected by peers to develop cost-saving measures. Through their personal knowledge about their jobs, employees are able to reduce waste and increase efficiency.
Website URL's:
1. http://epf.org/t980716.htm
2. http://www.silverstoneconsulting.com/consult/projecon/compsys/gainshar.htm
3. http://www.qualitydigest.com/jul/gainshre.html
HR GUIDE TO THE INTERNET:
COMPENSATION: INCENTIVE PLANS: MERIT PAY
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Merit Pay: An incentive plan implemented on an institutional wide basis to give all employees an equal opportunity for consideration, regardless of funding source. The merit increase program is implemented when funds are designated for that purpose by the institution's administration, dependent upon the availability of funds and other constraints. .
Advantages
• Allows the employer to differentiate pay given to high performers.
• Allows a differentiation between individual and company performance.
• Allows the employer to satisfactorily reward an employee for accomplishing a task that might not be repeated (such as implementation of new systems). Disadvantages
• The
HR GUIDE TO THE INTERNET:
COMPENSATION: DEVELOPMENT OF SALARY ADMINISTRATION PLAN
Develop a program outline.
• Set an objective for the program.
• Establish target dates for implementation and completion.
• Determine a budget.
Designate an individual to oversee designing the compensation program.
• Determine whether this position will be permanent or temporary.
• Determine who will oversee the program once it is established.
• Determine the cost of going outside versus looking inside.
• Determine the cost of a consultant's review.
Develop a compensation philosophy.
• Form a compensation committee (presumably consisting of officers or at least including one officer of the company).
• Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus noncontingent pay).
• Determine whether the company should set salaries at, above, or below market.
• Decide the extent to which employee benefits should replace or supplement cash compensation.
Conduct a job analysis of all positions.
• Conduct a general task analysis by major departments. What tasks must be accomplished by whom?
• Get input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each.
• Interview department managers and key employees, as necessary, to determine their specific job functions.
• Decide which job classifications should be exempt and which should be nonexempt.
• Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary.
• Develop a final draft of job descriptions.
• Meet with department managers, as necessary, to review job descriptions.
• Finalize and document all job descriptions.
Evaluate jobs.
• Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments.
• Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary.
• Prepare a matrix organizational review.
• On the basis of required tasks and forecasted business plans, develop a matrix of jobs crossing lines and departments.
• Compare the matrix with data from both the company structure and the industrywide market.
• Prepare flow charts of all ranks for each department for ease of interpretation and assessment.
• Present data and charts to the compensation committee for review and adjustment.
Determine grades.
• Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level.
• Determine the number of pay grades, or monetary range of a position at a particular level, within each department.
Establish grade pricing and salary range.
• Establish benchmark (key) jobs.
• Review the market price of benchmark jobs within the industry.
• Establish a trend line in accordance with company philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).
Determine an appropriate salary structure.
• Determine the difference between each salary step.
• Determine a minimum and a maximum percent spread.
• Slot the remaining jobs.
• Review job descriptions.
• Verify the purpose, necessity, or other reasons for maintaining a position.
• Meet with the compensation committee for review, adjustments, and approval.
Develop a salary administration policy.
• Develop and document the general company policy.
• Develop and document specific policies for selected groups.
• Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions.
• Develop and document procedures to justify the policy (e.g., performance appraisal forms, a merit raise schedule).
• Meet with the compensation committee for review, adjustments, and approval.
Obtain top executives' approval of the basic salary program.
• Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.
• Present data to the compensation committee for review, adjustment, and approval.
• Present data to the executive operating committee (senior managers and officers) for review and approval.
Communicate the final program to employees and managers.
• Present the plan to the compensation committee for feedback, adjustments, review, and approval.
• Make a presentation to executive staff managers for approval or change, and incorporate necessary changes.
• Develop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc.
• Make presentations to managers and employees. Implement the program.
• Design and develop detailed systems, procedures, and forms.
• Work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers.
• Have the necessary forms printed.
• Develop and determine format specifications for all reports.
• Execute test runs on the human resources information system.
• Execute the program.
Monitor the program.
• Monitor feedback from managers.
• Make changes where necessary.
• Find flaws or problems in the program and adjust or modify where necessary.
HR GUIDE TO THE INTERNET:
JOB EVALUATION: METHODS: POINT METHOD
Point Method A set of compensable factors are identified as determining the worth of jobs. Typically the compensable factors include the major categories of:
1. Skill
2. Responsibilities
3. Effort
4. Working Conditions
These factors can then be further defined.
1. Skill
1. Experience
2. Education
3. Ability
2. Responsibilities
1. Fiscal
2. Supervisory
3. Effort
1. Mental
2. Physical
4. Working Conditions
1. Location
2. Hazards
3. Extremes in Environment
The point method is an extension of the factor comparison method.
Each factor is then divided into levels or degrees which are then assigned points. Each job is rated using the job evaluation instrument. The points for each factor are summed to form a total point score for the job.
Jobs are then grouped by total point score and assigned to wage/salary grades so that similarly rated jobs would be placed in the same wage/salary grade.
Advantages
• The value of the job is expressed in monetary terms.
• Can be applied to a wide range of jobs.
• Can be applied to newly created jobs. Disadvantages
• The pay for each factor is based on judgments that are subjective.
• The standard used for determining the pay for each factor may have built-in biases that would affect certain groups of employees (females or minorities).
________________________________________
Tips
Factors Use well defined factors.
Biases Examine the Factor points for inherent biases against females and minorities.
Job Evaluation Process
The job evaluation process begins with a well written job description. It is a clear, precise, systematic and logical analysis of content, accountabilities and the objectives of a position. If there is no doubt in the mind of the reader about the nature of the job (i.e., what there is to do, how things are done and why the job exists), the job description is well written.
Each job is evaluated to determine the job's content or weight in terms of its contribution to the achievement of organizational goals. Based on this evaluation, the salary range for each job is determined.
Position descriptions explain to employees the role that their jobs play in the company's operation and the performance that is expected of them while they occupy those jobs. In addition, the description can be used as the basis for evaluating employee performance over a given period of time.
Position descriptions are also used for organizational analysis to determine how the unit is organized and whether accountabilities are grouped in the most effective manner.
The Evaluation Process
At Stony Brook, positions in the Professional Services Negotiating Unit are evaluated using a point factor plan designed to analyze the knowledge, experience, accountability, internal and external contacts, problem solving, and breadth of organizational impact needed to perform the job. The incumbent's accomplishments are not considered in the position evaluation process, only what is needed to perform the job.
For example: an incumbent may have a Ph.D. degree, but as an entry level administrator the Ph.D. degree is not needed to perform the job duties.
Knowledge and Experience
Knowledge and experience is defined as the sum total of every kind of skill, however acquired, needed for acceptable job performance. The equivalency of work experience and formal education is considered when evaluating a position's knowledge and experience requirements. For example: a technical position such as Physicist would require a degree, but administrative positions could probably be handled extremely well by non-college graduates who have the specific work experience.
Accountability
Accountability measures the responsibility for action and for the consequences of action. It is the measured effect of the job on end results. To what degree is the position free to develop answers to the problems it faces. Some problems are solved by following routine instructions and there is no room for deviation. Others, however, are solved within the broader confines or organizational policy and sound business judgment.
Internal and External Contacts
Internal and external contacts considers the characteristics and extent of the communication between and incumbent and students, staff and the public. Do they obtain and/or provide general information? Do they provide advice involving information which is non-standardized? Do they provide advice requiring a high degree of skill and diplomacy? Do they provide direction requiring a high degree of skill, diplomacy and leadership usually indicative in running a department?
Problem Solving
Problem solving measures the intensity of the mental process required by the job. Problem solving is the original self-starting thinking required for analyzing, evaluating, reasoning, arriving at and making conclusion. It defines the complexity and uniqueness of the problems normaly faced in the position. They may range from the repetitive to the uncharted or creative. Things that will be considered are: Do problems tend to reoccur? Are there differing situations requiring the incumbent to pick and choose decisions based on prior knowledge or experience or is the incumbent expected to define the problem, develop the alternatives and develop a recommended course of action?
Breadth of Organizational Impact
Breadth of organizational impact considers the size of the area in which the job operates. Is it the whole organization or a single department, or unit? To what degree is the person in the job free to take action without consulting higher authority. It measures the budget dollars that the incumbent is responsible for. It considers the role that the position plays in administering the budget:
• Interpretive: Informational or recording.
• Contributory: Interpretive or advisory for use by others in taking actions.
• Shared: Participating with others (except own subordinates and supervisors) within or outside the organizational unit in taking action.
• Primary: Controlling impact on end results. Final approval authority.
How to Write a Job Description
The first page of the job description serves to identify the job described.
It includes the line number, account number, official title, salary grade, local title, department, supervisor's name and title and incumbent's name (if applicable). All descriptions must be signed and dated by the incumbent, supervisor, department head and the vice president of the area.
There is also a place to indicate whether the position is new or a reclassification of an existing position. Additional pages may be attached if needed.
A cover memorandum explaining what has changed that resulted in the need for a new position or for the reclassification of an existing position would be helpful in understanding your position.
1) Position Summary
This section is a brief, specific statement of why the positions exists -- what is the major end result.
The reason for such a succinct statement at the outset is so the evaluator can immediately obtain an impression of where the position sits in the organization. The statement should clearly distinguish this job from all other jobs. In particular, it should differentiate this job from the supervisor's job, from jobs that report to it, and from other jobs at the same level. The summary seldom exceeds three or four lines. For example, the position of a Director of Personnel might be summarized as follows:
This position is accountable for assuring the attraction, development and retention of a qualified work force by establishing and maintaining appropriate personnel programs and services.
2) Principal Duties
This section describes the results for which the position has ongoing accountability. Accountabilities are statements of the important end results which the job exists to achieve. Each accountability statement should relate to a single end result which must be accomplished and which some measurement of performance can be applied.
The principal duties begin with an action verb that describes the incumbent's role, followed by a measurable or observable end result and the primary activity or way the end result is accomplished For example a principal duty for an Employment Supervisor might be:
Provide qualified candidates for job openings by screening applicants.
The action verb reflects the job's freedom to act in producing the end results described.
The end result is enduring in nature: the accountability for the result will not change unless the design of the job is changed even though the specific actions taken to achieve the result may vary considerably over time.
The major activities that complete the accountability statement need not be exhaustive, but there should be enough to give the reader an idea of what is involved in achieving the end results.
The principal duties should be listed in order of importance. They should answer the questions of: What the task is, How it is performed and Why it is done. Use examples to add meaning and define jargon or initials. Assume the reader knows nothing about your job.
To comply with the American with Disabilities Act "essential" job duties must be identified by placing an "E" before each statement.
3) List the three most complex duties and explain why.
Consider analytical demands, planning technical requirements, creativity, accountability for results, authority and decision making requirements.
4 & 5) Education and Experience
Include the minimum level and type of formal education required of an incumbent in order to perform the job duties. Keep in mind that most administrative positions can be satisfied with an equivalency of work experience.
Academic credentials or professional certifications are not listed here unless they are required by regulatory or licensing agencies. For example the position of Medical Director would require an MD and state license.
Include the number of years of actual work experience the incumbent will need in addition to the education requirements above.
6) How frequently and closely is the incumbent's work supervised?
This statement considers the frequency that work is monitored : daily, weekly, monthly, etc. It also considers the types of problems that must be referred to the supervisor for resolution. Are decisions made based on standard practice or does it required the incumbent to search for a solution.
7) What are the most serious consequences for the University.
This statement considers the types of errors and how the errors are found. Are errors detected by checks in the system or only after serious long-term damage has been done. Provide examples.
8) Internal and External Contacts
This section considers what contacts within and outside Stony Brook occur, how often they occur and why? Do the contacts exchange information, order supplies, provide services, make presentations, etc.
9) Give examples of sensitive or confidential data which the incumbent of this position is required to work with.
Provide examples of the types of confidential data that the incumbent works with e.g. salary information, employee performance issues, confidential data related to departmental projects, etc.
10) To what extent does the position participate in the development of policies and procedures for the department?
Provide examples of the types of policies and procedures that the incumbent develops.
11) Describe the scope and level of the incumbent's authority in employee relations matters.
This section assesses the incumbent's role in resolving problems usually seen by supervisory personnel such as settling interpersonal work disputes.
An organization chart should be included with each job description. Include names, titles, and line numbers for all positions shown on the chart. Ensure that the chart answers the following questions:
• To whom does the position report?
• What other positions report to the same supervisor?
• What positions report to this position?
Writing a Job Description Summary
1. Describe the basic purpose of the job. (Why it is performed)
2. List the various duties in order of importance. (Describe what the task is, how it is performed and why it is done)
3. Begin each sentence with an action verb.
4. Use examples to add meaning.
5. Define jargon or initials.
6. Assume the reader knows nothing about your job.
7. Answer all the why, how and with who questions that your sentences generate.
8. Provide an organization chart; include names, titles and line numbers. Ensure that the chart answers the following questions:
1. To whom does this position report?
2. What other positions report to the same supervisor?
3. What positions report to this position?
Glossary of Action Verbs
Administer
Exercise and implement control over the performance of specific operations, approved plans, or established policies within the scope of limited and well-defined authority.
Advise
Give information or opinion pertinent to a probable course of action.
Analyze
Study the factors of a problem to determine a proper solution.
Appraise
Exercise expert judgment of the value or status of proposals or performance.
Approve
Authorize action; exercise final authority; act independently without further consultation.
Assign
Appoint subordinates to accomplish specific responsibilities.
Assist
Take active part or give support in performing a function.
Audit
Examine to verify accuracy, or conformity with requirements.
Authorize
Give subordinates the power or right to act by virtue of having final, or definite authority.
Conduct
Exercise leadership in a project or study.
Consult
Seek opinion or advice of another.
Control
Exercise restraining or governing influence over activities to accomplish planned results by (1) establishing standards, (2) measuring work in progress, (3) interpreting results, and (4) taking corrective action.
Coordinate
Combine (through balancing, timing, integrating) the efforts of separate groups to accomplish a specific objective; coordination can be exercised without line authority.
Counsel
Give advice and guidance to another.
Delegate
Entrust to another's care and management.
Determine
Obtain definite and firsthand knowledge of.
Develop
Advance programs, planning or personnel capabilities to a higher stage.
Direct
Authoritatively define, regulate or determine the activities of subordinate organizational units to achieve predetermined objectives.
Establish
Put into effect or determine conclusively.
Estimate
Gauge the probable amount or value of.
Execute
Put into effect according to a plan. (see ADMINISTER)
Follow-up
See that actions are carried out to the finish.
Formulate
Express in an exact or systematic form.
Guide
Show the way through the intermediate steps in a broad plan or course of action by advice or suggestion rather than by authoritative direction.
Initiate
Start, begin or introduce a program or action.
Interpret
Explain or clarify.
Issue
Send out or distribute officially.
Maintain
Keep in a state of efficiency or validity.
Manage
Plan, organize and control dissimilar functions to achieve coordinated objectives by leading and directing subordinates without giving detailed supervision. (see SUPERINTEND and SUPERVISE)
Motivate
Inspire and stimulate subordinates to maximize their efforts and productivity.
Negotiate
Reach agreement on specific proposals through discussion or communication with others of a different viewpoint.
Organize
Set up plans and procedures for achieving objectives.
Participate
Take part in and share responsibility with others for action, but without individual authority to take action.
Perform
Accomplish to completion.
Plan
Devise or determine a course of action to achieve a desired end result.
Prepare
Make ready for a specific purpose; put into written form.
Present
Offer for consideration.
Promote
Offer for consideration in a manner intended to attract favorable attention and influence acceptance or support.
Propose
Offer for acceptance or adoption.
Provide
Furnish necessary information or services.
Recommend
Offer for acceptance and support a course of action to persons responsible for approval or authorization.
Review
Critically examine (completed work, reports, performance) with a view to amendment or improvement.
Serve
Actively carry out duties within the framework of a specialized activity, such as a committee.
Superintend
Plan, organize and control a function to achieve an objective by leading and directing subordinates without giving detailed supervision. (see MANAGEMENT and SUPERVISE)
Supervise
Instruct subordinates in details of work they perform (either directly or by enforcement of well-established rules), allot work, observe performance in detail and work with subordinates to improve performance.
JOB EVALUATION PROCESS
One of the roles of the Compensation Unit is to administer a University-wide Job Evaluation Program (JEP) for the three employee constituencies covered by the program: ACUMAE, CUPEU and CUSSU.
Salary Administrators in the Compensation Unit analyze the data and information provided by the incumbent to the position and his or her supervisor to gain a good understanding of the responsibilities of the position under evaluation and of its scope. Following this analysis, the rules and principles of job evaluation are applied in all fairness and equity.
JOB EVALUATION PROCESS
Definition
What a job evaluation is
It is an objective process to establish and maintain internal equity in matters of remuneration among positions at the University.
What a job evaluation is not
• A way to give an employee a raise
• A way to reward superior performance1
• A way to adjust salaries upward to meet salary rates paid in the market for certain positions2
• A way to “test the waters”
1. This is the role of a Performance Reward Program.
2. The purpose of a Job Evaluation Program is to establish internal equity. The Compensation Unit may from time to time carry out market surveys to ensure the competitiveness of the salaries paid out to University employees.
JOB EVALUATION PROCESS
Procedure
As the Compensation Unit receives several hundreds of requests in a given year for re-evaluations, we ask you to observe the following rules and tips to ensure that we provide you with timely and efficient service:
Re-evaluation of a position
To initiate the re-evaluation of a position, please provide the following information:
1. A Request for the Evaluation of a Position form signed by the immediate supervisor, the Unit or Department Head and/or the employee containing the following information:
o Department name
o Organization code
o Effective date of re-evaluation
o Position title
o Position code
o Grade
o Union
o Name of the incumbent (if applicable)
o Category of appointment: Permanent or contract
o Duration of the contract (if applicable)
o A statement explaining the context and the justification for a re-evaluation
o A revised job profile including:
Education and experience required for the new position
Other specific requirements (no more than four)
o A completed Job Evaluation Questionnaire
o Organizational chart
o Any other information relevant to the re-evaluation
o An up-to-date resume of the incumbent to the position
Evaluation of a new position
When a new position is authorized and needs to be evaluated, the following information is required:
1. A Request for the Evaluation of a Position form signed by the immediate supervisor and the Unit or Department Head containing the following information:
o Department name
o Organization code
o Effective date of hire
o Position title
o Category of appointment: i.e. permanent or contract
o Duration of the contract (if applicable)
o A job profile describing the nature of the position including:
Education and experience required for the new position
Other specific requirements (no more than four)
o A completed Job Evaluation Questionnaire
o Organizational chart
o Any other information relevant to the evaluation
Dr Ismail Aby Jamal
Born in Batu 10, Kg Lubok Bandan, Jementah, Segamat, Johor
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