What is Job Evaluation?
How do you know what a certain position should pay? What impact does a position have on the business’s success? What do other companies pay for this set of responsibilities? These are common questions when deciding how to compensate a job in your organization. To help make this determination fairly, HR engages in what’s called a job evaluation.
Job Evaluation Definition
A job evaluation is the process of establishing how much compensation to allocate to a job. This process involves using internal and external data to determine what a given position’s salary range should be, what related positions should pay, and what benefits are appropriate for a given job.
Common job evaluation examples include single-position evaluations for newly created jobs, reevaluations of jobs to make salaries more competitive or equitable, and company-wide job evaluations used to restructure the entire compensation program.
Job Evaluation versus Performance Appraisal
A performance appraisal evaluates an employee, whereas a job evaluation evaluates the position itself, without considering who is in that position. (Performance appraisals are also called performance evaluations or performance reviews.)
Why Perform Job Evaluations?
Although the process can be difficult, job evaluations bring a lot of benefits to the table, including:
- Helping you adjust to company growth. Many things happen when your company is growing. Your budget will change, you’ll have to fill new positions, and you may need more money to allocate to new jobs. A job evaluation can help prepare for these changes.
- Keeping your salaries competitive. Job evaluations that use external data will help you understand how competitive your compensation plans are compared to your market competitors.
- Ensuring pay equity. Job evaluations can reveal pay inequities, allowing you to eliminate them before they become problems.
- Executing retention and career development strategies. One of the primary reasons employees leave a job is to accept a promotional position. Job evaluations can help you prevent this by finding opportunities to develop employees. For example, job evaluations can help you create promotion paths or retitle positions to reflect an employee’s increased responsibilities.
Job Evaluation Methods
Job evaluations come in many forms and sizes, but all methods boil down to two factors: comparison and data.
That is, all job evaluation methods either help you understand how a particular position compares to other positions within the organization (internal comparison), or how a position is valued across the job market (external comparison). All evaluation methods use either qualitative data, which makes comparisons by evaluating the qualities and characteristics of a position or quantitative data, which makes comparisons by attaching numerical values to each position.
Classification, a qualitative method, involves either writing or analyzing job descriptions and then placing them into separate grade classifications. Grade classifications should reflect different job characteristics, such as seniority, job responsibilities, and skill level. Grade classifications might include vice president, director, assistant director, senior manager, manager and coordinator.
Grades should be created for each job family or department. Once they’re classified, their relative impact on the company’s success will determine compensation.
This method is relatively easy to complete. However, it’s also largely subjective.
Point Factor Method
The point factor method is the most commonly used quantitative method. It uses a point system to determine the appropriate compensation for a given position. This point system is created by establishing factors that influence compensation (such as skill or effort), and then assigning points to a position based on these factors. The total number of points determines compensation.
Ranking is a very simple qualitative method where all jobs in the company are ranked into a hierarchy. The more important a particular job is to the company, the higher it’s ranked. Unlike classification, ranking doesn’t involve creating grades. This method is very subjective and is best used along with another method to prevent errors.
Factor Comparison Method
The factor comparison method is a complex quantitative method that combines the point factor method and the ranking method. First, just like the point factor method, factors that influence compensation must be chosen and assigned.
Then, instead of establishing a point system, benchmark jobs that HR knows are paid appropriately are used to determine how each factor should be measured. Monetary values are then used in place of points. These values are then applied to other jobs to determine compensation.
Competitive Market Analysis Method
Competitive market analysis is a quantitative method focused on determining how competitive a company’s salaries are. This method is straightforward. Analysis involves obtaining market data—usually from third parties like PayScale or Glassdoor—and then comparing the salaries in the data set to the company’s salaries for the same jobs. External data usually needs to be purchased.
How to Conduct a Job Evaluation
No matter the method or size, a successful job evaluation requires planning and time. Below, we’ve created a step-by-step process to help you plan for any job evaluation.
Step 1: Determine the Scope and Purpose of the Job Evaluation
Is this a job evaluation for one job, a department, or the entire company? Is the evaluation for a new job, or are you reevaluating a job? Are you adjusting to budget cuts or growth?
Answering these and other questions related to scope and purpose will help you determine how much time the job evaluation will take, who to communicate and collaborate with, and which method is most appropriate.
Step 2: Select the Appropriate Method
It’s important to choose the best method for your established scope and purpose. For example, if your purpose is to determine whether your compensation plan is competitive, you won’t use the same method you would use to adjust to a new budget constraint.
Answering the questions in Step 1 will help you determine which method will be best suited for you. However, other factors to consider include:
- Budget. Your company may establish a budget for the job evaluation. This may impact which kind of method you use because some methods require more time and money than others.
- Timeline. Some methods take more time than others. If, for example, you’ve discovered a pay inequity, the job evaluation method you choose to adjust their pay will be much faster than if you’re organizing a job evaluation for next year’s recruitment cycle.
- Company size. How many employees you have will help you determine whether one of the more complex methods is really necessary.
- Access to data. You may not have access to all the data you need. This may be because your HR software can’t provide you the reports you need, or maybe your company has never purchased external salary data before.
Step 3: Compile the Necessary Documents and Data
To execute a job evaluation, you’ll have to pull a lot of data from your HRS software, if you have it, and other locations. Information you will need includes:
- Current salaries
- Company hierarchy, a list of job families, or similar data
- Job descriptions with job responsibilities
- Market salary data (if applicable)
- Workforce demographics, specifically for pay equity
- Data collected from employees and supervisors regarding job responsibilities, degree of difficulty, etc…
Some of this information may not be readily available. For example, you may need to create questionnaires for supervisors or employees, or request approval to contract with a third party for external data. If this is the case, consider preparing these requests before launching the evaluation.
Step 4: Test Your Methods on a Sample
With most job evaluation methods, you will have quite a bit of flexibility to decide how it’s structured and rolled out. You will be able to choose which factors to use, how to organize your company hierarchy, or which third parties to use for any external data.
Once you make your initial choices, test your method using sample jobs or sample job groups in your company. Troubleshooting in this way will increase accuracy and help reveal subjectivity.
Step 5: Keep Stakeholders Informed
Job evaluations often require input from managers and employees on issues such as current work responsibilities. Requesting this kind of input can feel intrusive. If communication is not clear and transparent, employees can justifiably become upset and concerned about their job security. In turn, job evaluations can become very difficult to execute..
To gain support, keep stakeholders such as supervisors informed of progress, communicate updates ahead of time so that no employee is caught off guard, and be transparent about any policies associated with the job evaluation.