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LECTURE TWO: DEVELOPING BASIC PAY STRUCTURES

INTRODUCTION TO JOB EVALUATION

Job Evaluation is a method of comparing jobs by use of formal and systematic
procedures in order to establish the relative worth of different jobs for purposes of
attaching pay (basic pay). An arrangement of jobs is usually obtained and salary
differentials are determined to reflect differences in job requirements.

Objectives of job evaluation

Job evaluation tends to provide a systematic basis for comparing jobs and for
determining the relative value of the different jobs, thus job evaluation has two general
objectives.
1. To compare jobs and to determine their level within an occupational group
2. To compare jobs within occupational groups i.e. to see whether the level of job x
in an occupational group is equivalent to, higher or lower than job y in another
occupational group.

Note: Achieving for the first objective is important for promotions, career planning and
employee development. Achieving the 2nd objective is of interest because of job
comparisons and pay differentials. Job evaluation attempts to achieve both objectives
by determining the rank order of all jobs in an organization.

3. To establish a systematic structure of the jobs based on their worth,

(organization worth is related to the attainment of organizational goals and
objectives) i.e. it is a pay for performance programme.
4. To justify an existing pay rate structure or to develop one that provides for
internal equity.
5. To set pay rates comparable to similar jobs in other organizations. This enables
an organization to match the competition for the available talent.
6. To provide a rational basis for negotiating pay rates when bargaining with trade
unions

Principles of job evaluation

The question of comparing jobs is of concern both to employees and executives within
organizations. However, in order to apply the principles of equal pay for equal work
systematically, it is necessary to have some clearly defined yardstick to serve as a basis
for comparison. Thus determining the evaluation factors is one of the crucial steps in
job evaluation.

Although most practitioners of job evaluation recognize the importance of selecting

appropriate evaluation factors, no clear guidelines have been provided yet. Surveys
indicate that a number of diverse factors have been applied in different job evaluation
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plans in which no rationale is provided for using some factors and for eliminating
others.

Methods of job evaluation

These can be seen as both non-qualitative and qualitative methods.

1 Quantitative methods

a) Factor comparisons method: - in this method jobs are compared with each other
and rankings are done in terms of various factor components for example physical
requirements, skill, responsibility. Jobs are then put into a job comparison scale,
which indicates the money amounts for each of the factors. Each job in the organization
is related to the job comparisons scale one factor at time, using the job description.

b) Point factor method; a number of factors are selected and defined for example
skill, effort, and responsibility, working conditions. These factors are considered to be
clearly common to all jobs in the organization or to clusters of jobs. The levels or
degrees to which each factors can be present in the organizations jobs are defined (each
factor can be assigned a percentage weighting which is translated into maximum point
scores that can be given to any factor. The sum of the score of each factor indicates
the maximum score that can be allowed for any job. The choice of factors and criteria
is strongly determined by the values of the company and or the organization’s mission.

2. Non-qualitative methods

a) Job Ranking method: various jobs are arranged in order according to their worth.
Separate ranks are developed using job descriptions of each department. This is
done by comparing directly the job descriptions, so that a continuous ordering
exists (by applying paired comparisons). Data from all departments is compared
and the result is an overall ordering of the jobs in the organization.

The major limitation of this method is lack of clearly defined criteria for job comparison.
The ranking procedure is highly subjective and familiarity with the job occupant and
the existing salary structure may affect the rankings.

b) Job classification /grading method; here grades are established first and then jobs
are placed into appropriate categories using pre-established grading rules. Separate
classification system is used for different categories such as, clerks, officers, senior
officers, directors, and managers. Descriptions are written that establish the
boundaries of the various grades within these classifications.
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In summary non-quantitative methods have a number of limitations;

 they imply a need for objective job experts for all the jobs to make clear
classifications or ranks.
 There is need to deal with inter judge/inter rater differences.
 There is lack of clearly defined grading criteria for the jobs.
 There is lack of detailed reporting indicating values assigned to job characteristics
and how the levels are determined.

Introducing competence based job evaluation

A competence refers to the ability to meet performance expectations and to deliver the
required results in a role. There is growing interest adopting HR methodologies which
embrace competence based approaches. Competence based job evaluations seek to
integrate the competence requirements of different jobs with job grading decisions. The
basis of comparing different jobs within organizations under the competence based
approach is the idea of compensatable factors.

Defining a compensatable factor

Compensatable factors are aspects of one’s job that should be given special attention
when creating a reward system. They are factors for which a jobholder should be paid.
These factors are the cross cutting or general aspects used to evaluate defined
organizational roles.
Defining a factor plan
The factor plan is an instrument me used to compare roles that are to be evaluated. It
shows the compensatable factors, factors levels and their definitions.
Creating a factor plan
a) Define each compensatable factor in such a way that it is measurable.
b) Assign weight for each factor using a hundred marks as a base
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c) Define or determine the number of levels in each factor to discriminate the extent
to which the factor is present in the roles or jobs of the organization to be
evaluated.
d) Provide an operational (measure definitions) of each level for all identified
compensatable factors.
e) Assign a weight for each level using the factor weights determined in (2) above
f) Test the validity and reliability of the factor plan by evaluating one job in each
job family.
g) Revise the factor plan accordingly.

Determining the levels of the Compensatable factors

The evaluation factors have been determined and the number of levels for each factor
needs to be distinguished. The levels of different factors have to provide a profile for
every job.

There are 2 basic problems in determination of the levels:-

1. Determining the content of the levels; Research evidence of job evaluation

indicates the importance of defining the factors and their levels as precisely and
as realistically as possible.

2. Determining the number of levels of each factor; There are 2 major considerations
for determining the levels.

a) As the number of factors that can be applied is limited, it’s advisable to have
many levels to enable maximum differentiation in the final ranking. The
greater the number of reliable levels, the easier, the technical analysis for the
final ranking of the different jobs
b) The levels should be clearly distinguishable for easier evaluation or
assessment. If there are too many levels, it’s difficult to distinguish between
them reliably.
The results of testing the reliability of different rankings reveal that in most cases, it’s
not possible to distinguish reliably between more than (5) or six (6) levels.

Job grading
The number of levels for the job grades come from the total scores (weights based on
scores on different factor levels) for particular jobs. Since the number of levels using
this analysis may be too many for practical human resource management needs, its
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desirable to reduce the number of levels. However, this should follow systematic
principles.

Differentiation between job classes

1. General Job evaluation factors help differentiate clearly between the job classes
within each of the job series. Therefore, the reduction of grade levels should
continue to differentiate between jobs within the various series.
2. The number of grades in a general schedule should be kept to the minimum number
of levels required to differentiate between the job classes. The possibility of keeping
the existing grades

Note: The principles 1 and 2 above are not always sufficient to determine the cut offs
points of the different jobs unambiguously.

Sometimes it’s advisable to choose the cut off points that correspond most closely to
the existing job levels. (Grades may be changed when inequities are found).

Maintenance of the job evaluation plan

Organizations are open systems. This means that the job and task structure of
organizations changes almost constantly. New jobs are created; old ones are altered or
eliminated. Job evaluation plans must be flexible enough and adaptable to such
changes. There is need to keep the evaluation plan up to date because of the changes
occurring in the jobs as a result of changes in the environment of organizations. To
update an evaluation plan, the following problems must be dealt with;
o Evaluation of new positions
o Re-evaluation of vacant positions
o The manner in which change is implemented affects the acceptance of the
results.
o If one position is assigned a higher grade, occupants of the other positions may
feel bad for not having obtained a similarly high grade hence employees should
be involved in the evaluation and implementation of their positions.

Problems
o The time of implementation; in job evaluation programs are usually planned to be
ready for implementation at the beginning of a new financial year or at the time
of wage agreement (time of signing the contract).
o Pace of implementation; whether results are implemented by rule or gradually,
employees who benefit from the changes could normally favour immediate
implementation. However, gradual implementation may reduce tension.
o Upgrading of positions; when job evaluation results necessitate upgrading of
certain positions, a time table should be drawn up and agreed upon in advance
i.e. when which job should be elevated to which category.
o Down Grading; should the pay of those individuals whose positions were
downgraded in the evaluation be reduced? One solution lies in allowing such
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person to retain their holder i.e. they should maintain their pay as an allowance
while the new recruits receive the new pay rate.

Other considerations in making pay decisions on completion of a job evaluation

exercise.

i. Double payment; No additional pay should be given for aspects already covered
by the basic pay system/structure. No additional compensation should be
assigned for inputs related to higher levels of performance for example education,
length of service or skills since these items are usually covered by job evaluation
in terms of task performance.
ii. Compensation for specific conditions; specific compensation is not just an
additional reward but employees should be eligible to receive compensation only
under specific conditions e.g allowances for overtime work, if the conditions are
changed, compensation should be discontinued.
iii. Demand fulfillment; it is advisable to distinguish between the nature of demands
and the means to demand fulfillment e.g if employees demand compensation for
bad working conditions. It may be preferable to improve conditions rather than
provide compensation (improvement of conditions in this case constitutes a
onetime expenditure whereas specific compensation is a continuing expense.
iv. Labour market considerations; Labour market considerations seek to address the
problems associated with external equity which is not catered for by an internal
job evaluation plan. One of the basic concerns of an organization is the need to
obtain and contain an adequate work force. Many employers believe that in
order to attract quality employees to job an organization and retain them,
organizations must offer a pay rate that is comparable with the rates offered in
other organizations.