Chapter 8 Evaluating Jobs - The Point Method Of Job Evaluation PDF

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Chapter 8

EVALUATING JOBS: THE POINT METHOD OF JOB EVALUATION

Chapter Learning Objectives • Describe the steps in designing a point system of job evaluation. • Identify the possible pitfalls in designing a point system of job evaluation. • Design a base pay structure, including pay grades and pay ranges. Using the Point Method to Design a Job Evaluation System

1. Identify key characteristics (compensable factors) that differentiate the value of various jobs 2. Develop a measuring scale for each factor (scaling) 3. Weight each factor according to its importance 4. Apply the job evaluations system to every job under the JE system, and rank list the jobs 5. Test resulting jobs hierarchy for reliability, validity and market fit, revising where necessary Identifying Compensable Factors

Scaling the Factors • After compensable factors have been selected and defined, a number of “degrees” (or "levels”) are established for each factor – Degrees represent gradations in the extent to which a certain factor is present in a particular job being rated • For example, five possible “degrees” or levels for the factor of “consequences of error” – Each degree needs to be defined and arranged so that degree 2 always contains more of that factor than degree 1

Weighting the Factors • The compensable factors that have been selected are not likely to be equal in importance to the firm. • To recognize this variation in importance, each factor needs to be weighted according to its relative importance. • For example, in one firm, “education” may be viewed as the most important factor, followed by “experience,” then “customer contact” and “mental complexity,” with “physical environment” considered the least important factor.

Applying the Job Evaluation System • Job evaluation system is then applied to all the jobs covered – A “hierarchy of jobs” is generated – Summarize the results of the job evaluation and hierarchy of jobs in a table (see table 8.2)

Testing the Job Evaluation System • Validity • The extent to which a measuring instrument actually measures what we intend it to • Reliability • The extent to which a measuring instrument consistently produces the same measurement result when measuring the same thing

Testing the Job Evaluation System • Benchmark job • A job in the firm’s job evaluation system for which there is a good match in the labour market data

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Market comparator job • A job in the market data that matches a benchmark job within the firm’s job evaluation system

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Market line • A regression line that relates job evaluation points to market pay (in dollars) for the benchmark jobs Pay policy line • The intended pay policy for the organization, generated by adjusting the market line for the intended pay level strategy of the organization Correlation coefficient • A statistic that measures the extent to which plots of two variables on a graph fall in a straight line

Calculating Proposed Pay • A more precise way to calculate proposed pay for a given job is to use the equation for the regression (market/pay policy) line that is generated by the computer

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which is in the y = mx + b format where “y” is the dollar value of the job “m” is the slope of the market/pay policy line “x” is the JE points total for that job and “b” is a constant (the constant “b” could be a minus or a plus, depending on where the regression line intercepts the vertical axis).

Testing the Job Evaluation System • Correlation coefficient (also known as regression coefficient) can range from +1 to –1 • +1 or –1 occurs when all the plots fall in a straight line – +1: Positive relationship between job evaluation points and pay rates – –1: Negative or inverse relationship between job evaluation points and pay rates

Job Evaluation Problems 1. Coefficient problem 2. Slope 3. Height Solutions: – Check that benchmark jobs are actually equivalent to the market comparator jobs in the market you have matched them with – Valid market sample? Good choice of BM jobs? Valid market comparator jobs for each BM job? – Examine ‘outlier’ jobs – but avoid temptation to adjust JE points of these jobs so that the correlation coefficient looks better Possible Pitfalls of the Point Method of Job Evaluation 1. Inconsistent construct formation 2. Factor overlaps 3. Hierarchical grounding 4. Gender bias Determining the Base Pay Structure • Base pay structure – The structure of pay grades and pay ranges, along with the criteria for movement within pay ranges, that applies to base pay

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Pay grade – A grouping of jobs of similar value to the organization, typically grouped by point totals Pay range – The minimum and maximum pay rates (in dollars) for jobs in a particular pay grade

Why Use Pay Grades? 1. Recognizes that job evaluation is essentially a subjective process, and it makes little sense to try to make very fine distinctions between jobs 2. Makes it easier to justify and explain pay rates to employees 3. Simplifies the administration of the pay system by eliminating the need for separate rates and pay ranges for every job 4. Having jobs clustered within pay grades makes it easier for employees to move across jobs in the same pay grade 5. Creates more stability for the pay system Establishing Pay Grade Sizes • Equal interval approach – Method to establish pay grade widths, in which the points are spread equally for all pay grades • Equal increase approach – Method to establish pay grade sizes, in which each pay grade increases in width by a constant number of points form the preceding pay grade • Equal percentage approach – Method to establish pay grade sizes, in which each pay grade increases in width by an equal percentage from the preceding pay grade • Broadbanding – Practice of reducing the number of pay grades by creating large or “fat” grades, sometimes known as “bands” Establishing Pay Ranges

Establishing the Range Midpoints • Intergrade differentials • Difference between the range midpoints of adjacent pay grades in a pay structure, expressed in dollars • Intergrade differential percentage • Calculated by dividing the intergrade differential of each pay grade by the midpoint of the previous pay grade

Establishing the Range Spreads • Range spread • The difference between the maximum and the minimum pay level, in dollars, for a given pay range • Range spread percentage • A percentage calculated by dividing the range spread for a given pay range by the minimum for that pay range

Movement Through the Pay Range

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Criteria must be established to determine how placement and movement within range will occur Three most common criteria: – Experience – Seniority – Performance A person’s initial placement in the pay range may be determined by previous experience – For example, seniority (years in the job) or performance (or both) can be used to determine future increases within the pay range Just noticeable difference (JND) – The amount of pay increase necessary to be considered significant by employees receiving the increase

Living Wage • The minimum income necessary to help a work enjoy a decent standard of living • Different from minimum wage Discussion Questions 1. Discuss the issue of gender bias in compensation and the ways it can affect the development of a base pay structure. In your employment experience, have you noticed possible examples of gender bias in compensation? 2. Discuss the hierarchy of jobs for a Canadian hospital shown in Table 8.2. Does everything about this ranking of job values make sense to you? Are there specific jobs that seem out of order to you? If so, which ones? Why do you think so? 3. Apart from gender bias, what are the key pitfalls of job evaluations? How can you minimize their potential problems? Rank the hospital jobs shown in Table 8.2 (p.298) according to your own impressions of how valuable each job is to the hospital. Share your rankings with other classmates, and discuss any differences in your rankings. Also discuss any differences from the rankings shown in Table 8.2....