Job Evaluation: How to set pay?

by Angelo Kostopoulos on February 9, 2016

The labor market in this area is funny, some jobs are so in demand that you have to ‘pay what you have to’ while other jobs have so many qualified applicants that you get to hold down the pay.  So, what is the ‘best’ job evaluation system for us in the DC, VA, MD area?

In a nutshell, there is no ‘best’ job evaluation system.  Balancing the fine line between what an organization can afford to pay to attract quality talent while watching their bottom line is where many HR professionals spend countless hours.  The job evaluation system chosen should coincide with the organization’s culture, goals, and pocket book.  The three job evaluation methods most used by organizations in this area and, coincidently, by participants of the HRA-NCA Compensation Survey, are Point Factor, Market Pricing, and Ranking/Leveling – or a bit of each.

Point Factor

This method is widely known in our area as it is the one used by the Office of Personnel Management (OPM) for grading white collar positions for the Federal Government.  At OPM it is called the Factor Evaluation System (FES) and was developed in 1977.  This method uses a written job description as a basis; the position is then examined and rated on 9 factors (or categories) with a point value assigned for each factor.  The sum of the points determines the grade – which is paired with OPM’s pay schedule of 15 grades with 10 steps in each grade locality of the position.  (This system is also used by most public service entities.)  The factors OPM uses are:^[1]

1. knowledge required by the position
2. supervisory controls
3. guidelines; complexity
4. scope and effect
5. personal contacts
6. purpose of contacts
7. physical demands
8. and work environment

As you might suspect, more weigh is placed on the top 4 items as they are deemed most relevant to successful performance in the positon.  (For more on the FES, please see ‘The Classifier’s Handbook’ at www.opm.gov  (type in ‘Classifier’s Handbook’ in the search box).   You might also want to explore/read ‘Introduction to the Position Classification Standards’ also on the OPM website.)

Market Pricing

Over the last few decades, market pricing has become the primary job evaluation method in most organizations, due in part to increased competition in the labor market.  Organizations are more likely to first look at the external value of a job and then consider internal job worth/alignment.  In Market Pricing a decision has to be made as to where the organization wants to be relative to the market:  at market (typically at or around the 50th percentile), ahead of the market (typically at the 60^th to 80^th percentile), or leading the market (at or above 100^th percentile).

When using salary survey data in market pricing one has to be very certain of the job match, however; most organization use at least two surveys (matches) to market price jobs and these have to be available — this is where the HRA-NCA Compensation Survey can really help in the market pricing of a job.  The HRA-NCA Compensation Survey information of 536 jobs is almost equally divided into three groups (government contractors, for profit/not government contractors, association/not for profit) of organizations.  In 2015 there were 245 participants with 78% repeat participants, a particularly high repeat rate that ensures consistency of the information.  The results are published in a format that is easily understood.  One can even request ‘special cuts’ of the information.

Market Pricing is volatile and you may have to stay on top of the pay to remain competitive; you may have to consult survey data more than once a year.  But for most organizations you don’t have to market price all the jobs – some jobs like those in Human Resources, Accounting, and clerical support are pretty steady and can be done once a year or by Point Factor.

[Tip: If you want to create salary ranges for jobs/positions you have market priced, take the sum of the salaries paid for a job, divide it by the number of incumbents, take 80% of that as the minimum, and 125% or 130% as the maximum of your range.  Tweaking of the range spread can give you a lower minimum and/or a higher maximum – whichever you need.  If your highest paid employee does not fit within the range, you have to decide that the employee is that exceptional OR your range is too low and you need to move it up.  If you don’t want to move the range every year, remember to leave room for the top employee to get a raise.]

Leveling

Leveling is an internal analytical process and involves a quick evaluation of a position’s worth to the organization combined with comparative ‘analysis’ of its worth with regard other internal positions.  The idea is, pay what you have to for some jobs and then compare that job to others in the organization that you ‘value’ as equal.

[Quick comparison:  You hire a CFO at $224K, then you need to hire a controller and treasurer – well, they report to the CFO so the pay should be less, but what is the relationship between the controller and treasurer?  If you are a not for profit, you might have a large endowment and ‘value’ the Treasurer higher than the Controller, but if you are a not for profit with a few grants to manage by the Treasurer then you might ‘value’ the Controller job higher.]

This is typically how start-ups will operate at first.  They hire as needed then look at what they have created (as far as a structure is concerned) – perhaps tweak it a bit – and add jobs to the mix based on their ‘value’ to the organization.  Eventually, in most cases, more structure is added in the form of some sort of analysis of the structure you have created – and you may add factors or grades/ranges.

Conclusion

Most organizations use a combination of the above methods for all of their jobs.  Knowing your resource allocation, proper understanding of each position/job, and market rates for similar jobs helps you, the HR professional, do what is best for your organization.  In this area, many IT jobs have their own pay scale(s) which are more flexible than those of the support staff, accounting, and/or HR jobs, which aren’t as high in demand.  If you are forming a new area of the organization, you might just hire who you need to head it up, someone else to work with the first person at a bit less (Leveling) then people/jobs beneath them (perhaps at Market) and then any administrative support jobs in alignment with the existing structure for the rest of the organization (which may be Factor).

No matter which compensation method your organization uses to reward employees, having an underlying understanding of it and the others out there will enable you to stay as competitive in the market as you want to be.

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Sources:
^[1] The classifier’s handbook. (TS-107, August 1991). US Office of Personnel Management

About the Authors – Pete Delate and Maria Gupta

This month’s contributing analyst is Pete Delate, a member of the HRA-NCA Compensation committee.  Pete has over 20 years of experience in human resources, with extensive classification and compensation experience.  He is currently a Compensation Specialist at the Metropolitan Washington Airports Authority.

Maria Gupta is the blog writer for AKRON Inc.  When she is not working on the next blog, she is attending HRA-NCA and other local HR and SHRM chapter events in the DC metropolitan region.