One of the important steps that should be taken in developing an effective compensation system is to conduct what is called a job evaluation process, a comprehensive and systematic system for determining what value each particular job has to an organization.
One of the most common job evaluation systems is called the point factor system. This allows each job to be broken down into sub-factors that can be measured separately and assigned a point value. This point value is then translated and compiled into so-called job families and salary ranges. Most frequently, the sub-factors include elements such as skill, which considers both academic and on-the-job knowledge. Another factor assesses interpersonal communication and job complexity.
The sub-factor referred to as effort includes consideration for the nature of physical and mental demand found in each job. Finally, the subfactor of responsibility includes an assessment of elements such as the nature of decisions made in a job and responsibility for financial or material resources.
Once an evaluation instrument is selected, then a systematic administrative process must be established to collect the job information, so that jobs can be rated and evaluated. To do this, employees are asked to complete a comprehensive questionnaire in which they are asked to respond to questions related to the various job factors. The questionnaire is thorough as responses must be provided with respect to the frequency of job tasks, whether the tasks are routine or unique, how important the tasks are related to the overall work and how much time each task requires.
One of the additional values of a job evaluation process is that managers will find out what their employees are really doing. In fact, they may be surprised to find a large amount of job creep. In other words, the managers will often find that many employees are spending far too much time on tasks the manager may not see as important.
While an organization may choose to have an external vendor conduct the job evaluation, the most effective way is to train an internal group of objective employees to conduct the evaluation. The best participants for this process are employees who can see the big picture and understand how most jobs fit into the organization. Next, the evaluation committee must be provided with in-depth training on the whole process.
Undertaking a job evaluation process also requires communication to employees, as many will become anxious and worried about their job. On the other hand, you can count on at least one group of employees who automatically think this process will result in a raise. Employees need to receive communication on how the job evaluation process will roll out within the company, how they are expected to participate and what will happen with the results.
Once the jobs are evaluated, they are placed into what is called job families based on the number of points assigned. So for instance, a security guard and a receptionist with the same number of value points will be placed within the same job family. These job families and their assigned points are reviewed many times to validate the ratings and ensure the correctness of the final point assignments.
Once this is complete, an analysis is conducted to determine if some jobs of the same value are out of alignment with respect to the overall compensation. This analysis will determine if jobs are overpaid and/ or underpaid. At this point, the organization will have to make several decisions with respect to correcting the misalignment, be it overpaid jobs and/or underpaid jobs. These decisions require considerable discussion and planning.
While the job evaluation process is strenuous and time consuming, to say the least, once completed the organization will have a system that will last for many years. A job evaluation process is especially helpful when misalignment is rampant within an organization and is also utilized after a merger and/or acquisition or when roles have drastically changed. Once the system is in place, newly created roles can be evaluated and then easily placed within the salary ranges set up. Finally, the questionnaire provides sufficient information for specific job descriptions to be set up and approved.
Potential candidates and current employees alike pay attention to compensation. If people do not have a sense of “fair felt pay,” believe me, they will become disgruntled and will leave for better salaries elsewhere. So, if you have areas of high turnover due to compensation issues and/or if there is a good deal of salary misalignment in your organization, now is the time to review your compensation practices and to use a process such as job evaluation to amend any areas of challenge.