Methods of Job Evaluation: The Best Way to Match Salaries

1. Methods of Job Evaluation: The Best Way to Match Salaries Presented to NPELRA April 9, 2003 Bruce G. Lawson, CCP Fox Lawson & Associates LLC (602) 840-1070

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

3. History of Job Evaluation • 1865 - Karl Marx wrote in Das Kapital that the value of goods and services is based on the amount of labor that goes into them • 1885 - Frederick Winslow Taylor stated that the content of labor in labor determines the price of labor • 1935 - Edward Hay developed the Hay point factor system • 1963 - The Equal Pay Act prohibited discrimination on the basis of sex…for equal work on jobs, the performance of which requires equal skill, effort, and responsibility and which are performed under similar working conditions. The EPA formalized non-market based pay plans

4. Why Job Evaluation • Focus is on internal equity rather than market parity or external competitiveness • There is a strong interest in comparable worth or pay equity • There is limited market data available

5. Alternative Pay Systems • Job evaluation system that supports your classification philosophy and strategies • Mix of reward versus entitlement (base) pay • Multiple base salary structure(s) • Individual versus group incentives • Performance measurement • Alternative Reward Strategies • Broad Banding • Skill Based Pay • Individual Incentives • Group Based Incentives

6. Job Evaluation • Not a science • Not a solution to salary problems • Not a substitute for managerial decision making about individual salaries • Not a cost cutting technique • Not always consistent with the labor market

7. Objectives • To systematically establish the relative value of jobs within an organization • Impose a structured approach to determining job value that is objective (to the extent possible) and documented • Provide a basis for pay determination

8. Distinctions • Job evaluation - Assesses the relative worth of jobs • Performance Appraisal - Assesses the performance of individual employees in the conduct of specific job duties • Position Allocation - Determines the appropriate classification for each position/employee

9. Non-Quantitative Approaches • Whole job ranking • Classification • Market Pricing

10. Quantitative Approaches • Attempt to establish relative worth • Give the illusion of being more precise than non-quantitative approaches • Easier to defend to employees and managers • Tool should be tailored to job classification philosophy • Point Factor • Factor Comparison • Scored Questionnaires • Decision Band

11. Whole Job Ranking • Not a formal methodology • Often used by smaller organizations • No fixed criteria • Not recognized as valid by the EEOC

12. Market Pricing • Not a formal job evaluation methodology • Often used by smaller organizations • Only criteria is the labor market • Employees and managers tend to support market based systems • If administered fairly, will take into consideration both increases and decreases in market conditions. This is often not well received by employees and labor organizations. • Requires considerable market data. Typically, at least 50% of all jobs need to be priced to defend values for related jobs

13. Point Factor Plans • Focuses on compensable factors - The Federal Equal Pay Act references four factors: • Skill - experience, training, education and ability measured in terms of the job’s performance • Effort - physical or mental exertion needed for job performance • Responsibility - accountability • Working Conditions - surroundings and hazards encountered

14. Skill Sub-factors include Knowledge (education/training) Experience needed Credentials or licenses required Manual dexterity required Analytical ability required Interpersonal communications Factors

15. Effort Responsibility Working Conditions Sub-factors include Physical demands Mental exertion Impact on the organization Accountability/ decision making Supervision received/exercised Internal/external contacts Hazardous/dangerous environment Adverse conditions/Travel Factors

16. Point Factor Plans • Factors and weights must be carefully established • Significant risk of inherent bias by ignoring stereotypical female qualities such as nurturing & caring, concern for others, cooperation, and cooperation • Supervision and management often benefit empire builders by awarding additional points for the number of people supervised, size of budget, etc. to the detriment of highly technical or skilled jobs

17. The Process • Factors and Weights for each factor are established • Degrees (yardsticks) that define the factor range and its respective intervals, along with point values, are established. For example, Education might be divided into the following degrees: • No formal education required • Requires reading and writing at the 8th grade level • Requires High School diploma or equivalent • Requires AA degree or completion of an accredited trade school (2 year program) • Requires a Bachelor’s degree • Requires a Master’s degree • Requires a Ph.D. degree

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

19. Pros and Cons • Disadvantages • Time consuming and costly to establish • Typically requires that pay grades be established although each point can be given an economic value resulting in continual pressure to upgrade individual positions or jobs in order to increase pay • Subjective assessment needed to establish point range for salary grades • Typically relies on key jobs within the organization

20. Factor Comparison • A refinement of whole job ranking • No detailed criteria • Uses universal factors for defining jobs (e.g. skill, effort, responsibility, working conditions) • Each factor can be weighted • Jobs are ranked within each factor • Labor intensive - involves numerous judgments in order to build ranking (# jobs X # jobs X # factors = # of individual decisions needed) • Example: 100 job titles X 100 job titles X 4 factors = 40,000 individual decisions that must be made to develop hierarchy

21. Advantages • Custom made job evaluation plan for the organization • Relative value is easily understood

22. Disadvantages • Can be difficult to set up • Needs to be re-established each time a new job is added to the structure or an existing job changes since these actions will affect the overall rankings

23. DBM - Basic Logic • The value of a job should reflect the importance of the job to the organization • The importance of a job is directly related to the decision-making requirements of the job • Decision-making is common to all jobs • Decision-making is measurable

24. The Process • Six broad Decision Bands • Looks at essential duties of the job • Level of each duty is determined • Highest banded duty determines Band of the job • Within Bands, looks at supervisory relationships and technical level of job (dual career track) to determine a Grade • Within each Grade, examines difficulty and complexity of the work to determine Sub-Grade (if needed). Allows for consideration of such secondary criteria as time pressures, consequence of error, minimum qualifications, need for care and precision, etc.

25. Advantages • Only job content is considered - either incumbents do certain work or they do not. Consequently, it is more difficult to manipulate the job ratings. • Factors unrelated to work are not considered in the evaluation (e.g. what employees bring to the job.) Those issues are handled separately as pay issues. • Working and labor market conditions are treated separately as pay premiums, if applicable. • Less complex than other methods, resulting in less cost to administer • Can be applied to either individual positions or broad job classes

26. Disadvantages • Non-traditional approach • Results not as narrowly defined as other methods which may cause employee concerns. Because groupings are broader, some employees and managers have difficulty understanding how other jobs can be equal to theirs.

27. Selecting JE Criteria • Acceptable to parties involved • Valid as distinguishers among jobs • Must be present in all jobs being evaluated • Must be measurable • Should be independent of each other so as to not overweight any single factor • Some plans with large numbers of factors often result in substantial bias towards one occupational group or group of individuals resulting in inherent bias -most JE systems need to measure only 3 factors to be accurate

28. Selecting JE Criteria • Cost to install and maintain the system • Efficiency and effectiveness • Reliability

29. Comparison of Methods

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

31. Issues to Consider • What do you do when market does not match JE results? • Is there really a problem? • Confirm the job description? • Raise or lower the JE rating? • Market premiums?

32. Conclusions • Select job evaluation method that ties to your classification philosophy • Determine whether the JE method is to be used within only a single job family or bargaining unit or across the whole organization • Involve the stakeholders so they understand why you are using a particular method • Provide a basic understanding of the tool to those affected • Review ratings with stakeholders to identify issues • Validate job descriptions is questions about ratings result since all methods are tied to the job descriptions