Back to Compensation Basics: Job Evaluation

1. March 11, 2009 Back to Compensation Basics: Job Evaluation Tonushree Mondal and Shelley PetersonPhiladelphia

2. Please ask questions during the session! Objectives of today’s session • Present the concept and purpose of job evaluation (JE) • Build understanding of alternative job evaluation methods and job evaluation design • Spark discussion and new thinking about job evaluation systems and linkages to HR and compensation systems • Provide hands-on experience applying alternative job evaluation systems • Position you to better understand the role of job evaluation in your organization

3. Discuss with your neighbors for 5 minutes Exercise 1 What is the “biggest” job? • Electrical Engineer • Finance Director • Senior Sales Representative • Business Systems Analyst • Communications Manager

4. What is job evaluation?Concept and purpose

5. What is job evaluation?Market and internal perspectives Market Internal • Typically ranks all jobs on HOW THE MARKETvalues them • Value jobs create for the company • Relative scarcity of skills in the marketplace • Typically ranks all jobs on HOW THE ORGANIZATIONvalues them • Scope, impact, and contribution within the context of the organization structure • Working conditions Today’s focus

6. What JE systems are US companies using?Almost 40% are using a combination of methods Historically, companies emphasized market value but increasingly both market and internal value are considered

7. How is “market” used as a job evaluation method?Market pricing and slotting – how does it work? $51k Grade 8 Job A . . . $45,000 Job B . . . $41,000 Job C . . . $37,000 Job D . . . $34,500 Job E . . . $33,700 Job F . . . $30,000 Job G Job H Market value used to establish overall “job value” $45k Grade 7 $42k Jobs assigned to grade or band with market range closest to market value $39k $36k Grade 6 $33k Non-benchmarks may be slotted to the structure utilizing various approaches* Non-benchmarks $32k $29k • *Non-benchmarks may be slotted by: • Informal slotting • Utilizing a slotting/ranking tool • Utilizing a job family/career leveling framework $25k

8. Advantages Easy to explain Credible Direct link to market value Disadvantages Difficult if data is not available or markets are changing rapidly Slotting is open to interpretation – “hybrid” jobs are hard to place Can not compare jobs across regions/countries Does not recognize internal equity Not as legally defensible Market pricing and slottingAdvantages and disadvantages Used as a primary job evaluation method by 50% of US companies; used in addition to internal JE by another 38%

9. What are common internally-focused job evaluation methods?Alternative systems • Whole job ranking • Jobs are ranked considering job content in totality and general criteria of worth to the organization • Classification • Jobs are slotted into grades/levels/bands considering aspects of job content compared to qualitative factor/criteria descriptions • Standardized point factor • Jobs are evaluated and assigned to grades/levels considering aspects of job content compared to universal qualitative factor descriptions that have underlying weights and points that are used by many organizations • Customized point factor • Jobs are evaluated and assigned to grades/levels considering aspects of job content compared to qualitative custom factor descriptions that have underlying weights and points that tailored and specific to the organization Increasing complexity

10. Whole job rankingHow does is work? Relative to Job A, the value of Job B is greater, equal or less: Jobs are compared to one another considering “overall” value Job B Job A All jobs are compared and ranked to create a hierarchy Job E Job B Job A Job D Job C Job F Organizations may choose to “draw lines” to create groups for management purposes Group 1 Group 2

11. Advantages Simple Easy to use Easy to maintain Disadvantages Potential for bias May overemphasize a single factor Open to inconsistent application Whole job rankingAdvantages and disadvantages May be used by small, domestic organizations but not considered best practice

12. ClassificationHow does is work? Band II Band III Factor language describes each of the grades/levels/bands Thorough knowledge of specific field; may require degree or license Professional degree with extensive knowledge beyond a specialized area Knowledge & Skill The depth and breadth of knowledge to fulfill job requirements. This may involve different combinations of formal education, specialized training and job-related experience. Jobs are compared to factor language and assigned to the band of “best fit” Under general supervision; may deviate from standard procedures using own judgment Exercises independent judgment, with little guidance or precedent Independent Judgment The extent to which the job is required to exercise judgment /make decisions in the absence of supervisory guidance, work routines, precedents, policies or procedures. Number of factors is typically limited to a maximum of six Affects large department or function Affects entire organization in the long-term Organizational Impact The extent to which the decisions made within the job’s core responsibilities affect the organization.

13. Advantages Easy to use Easy to explain Adaptable to job families Disadvantages Potential for bias Language often open to interpretation Difficult to deal with complex organizations Difficult to classify jobs that span levels on various factors ClassificationAdvantages and disadvantages Commonly used by medium to large-sized domestic or global organizations

14. ClassificationClient example • Global $18B consumer products organization • Need to build common understanding and structure to manage jobs

15. Standardized point factor (e.g., consulting firm system) How does is work? Mercer’s IPE: International Position Evaluation system Jobs are assessed against standardized factors and language Factor ratings are associated with standardized point values Total point sums are grouped in pre-set classes/grades/etc.

16. Advantages Well tested methodology maintained externally (no build investment, limited maintenance cost) Can compare jobs across functions, and organizations (divisions, regions) Can handle all jobs – benchmark or unique/hybrid Potential to directly link to market values Easy to outsource Disadvantages May be viewed as generic/inflexible Vendor makes investment/development decisions May be considered administratively complex Standardized point factor Advantages and disadvantages Commonly used by large, complex global organizations

17. Standardized point factorClient example • Global, $35B diversified technology, manufacturing organization • Desire to add more rigor and consistency to existing classification system

18. Customized point factorHow does is work? Similar to Standardized point factor except: Factors and factor language are developed for the company Factor weights and points are customized to reflect the company’s values Point values are grouped into unique classes/grades for the company

19. Advantages Can handle all jobs – benchmark or unique/hybrid Can compare jobs across functions, and organizations (divisions, regions, etc.) Factors and weights can reflect the organization’s unique values Factor language resonates with internal stakeholders Disadvantages May be considered administratively complex High build and maintenance investment Risk of loss of system knowledge due to turnover Longer implementation timeline No linkage to external market data Difficult to outsource Customized point factorAdvantages and disadvantages Commonly used in small to mid-sized domestic organizations; often used in Canada to comply with specific Pay Equity legislation

20. What are job evaluation factors?Factor characteristics

21. Discuss with your neighbors for 10 minutes Exercise 2 What are examples of good job evaluation factors?

22. What are commonly used job evaluation factors?Typical JE factors

23. How is job evaluation used in organizations?Linkages to HR and compensation systems Two of the most common applications of job evaluation are: • Role clarification • Assessment of job design, allocation of responsibilities, appropriateness of organization structure • Grade and salary structures • Development of organizing frameworks to support pay management

24. Role clarificationHow does is work? Role clarification document Identifies and clarifies key responsibilities of the job Areas of responsibility Identity Acts as a two-way communication process between the individual and organization Purpose Size Network Measurement Criteria Informs objective setting and career development needs Requirements

25. CURRENT OPTION 1 Factory Manager Factory Manager Production Head Production Head Plant Admin Plant Admin Production Exec Materials Exec Accounts Exec Production Exec Materials Exec Accounts Exec Role clarificationHow does is work? Identifies opportunities to make organization structures more efficient & effective Highlights potential to redesign work to promote employee empowerment

26. Job Size Natural Break Point Groups L Directors Population Spread L-1 L-2 Job value – decreasing order L-1 Managers L-2 L-1 L-2 L-3 L-1 L-3 Staff L-2 L-2 L-2 L-2 L-2 Grade and salary structuresHow does is work? Analyze the distribution across point values to study natural break points Test that jobs with similar scope, size and complexity fall within the same group

27. maximum value minimum value Compensation Compensation 1 2 3 4 5 1 2 3 4 5 Grade Grade Grade and salary structuresHow does is work? Develop relationship between points/grades and compensation Build salary ranges, incentive targets, etc.

28. What technology is used to support job evaluation?Example: Decision tree • Evaluations using branched-logic questions

29. Conducting job evaluationSome guidelines • Clarify the activity and the areas of responsibility within the job – don’t make assumptions – take a fresh look • Evaluate the job and not any one person who occupies the job • Evaluate at a competent level of performance • Consider normal operations – not the effect of errors • Assess the position as it exists now – not as it may be in the future • Do not advocate for a particular department, function, or group • Put aside consideration of pay levels • Remember evaluations are tentative until the final list is prepared

30. Discuss with your neighbors for 20 minutes Exercise 3 • Read the job description provided • Determine the appropriate band using the classification matrix • Identify the factor ratings for each of the factors provided

31. Why is job evaluation more important than ever?Applications in today’s environment • The current economic and regulatory environment present challenges with which a job evaluation system can help including: • Global operations • Global organizations need consistent structures across geographies to compare jobs and support mobility • Organization re-structuring • Companies changing business models, organization structures, etc. need to understand the implications on impacted jobs • Legislative compliance • Increasing regulations on businesses force companies to have pay programs that are legally defensible (e.g. Lilly Ledbetter Fair Pay Act)

32. Thank you for your participation! Key takeaways • Organizations use job evaluation systems to establish the relative value of jobs • Job evaluation systems consider the external (market) and/or internal value of jobs • Plans of varying complexity are used ranging from whole job ranking to customized point factor depending on the nature and objectives of the organization • Job evaluation is focused on the job (sometimes difficult to do!) • Numerous HR and compensation systems are linked to job evaluation results

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