HR Basics: Job Evaluation

Summary

HR Basics explores job evaluation, a process to determine the relative worth of jobs within an organization. It discusses two major approaches: market-driven, which uses market rates without job evaluation points, and job worth systems, which assign points to job factors. The video outlines four job evaluation methods: ranking, classification, and the widely used point factor method, which quantifies job components, and market pricing, which focuses on external market pay data. The summary highlights the importance of aligning compensation with both internal equity and external market competitiveness.

Takeaways

• 📚 Job evaluation is a systematic process for determining the relative worth of jobs within an organization.
• 💼 It results in the development of an internal pay structure or hierarchical ranking of jobs, which forms the basis for base pay structures.
• 🌐 There are two major approaches to job evaluation: market-driven and job-worth systems, each with different focuses and outcomes.
• 📈 Market pricing uses market data to set pay rates without detailed job evaluation, focusing on external market rates.
• 🏢 Job worth systems incorporate market pricing data but assign points based on the job's value to the organization, emphasizing internal equity.
• 📊 Both methods use relative comparisons to assess job worth, with market pricing looking externally and job evaluation focusing internally.
• 🔢 The ranking method is a simple system that orders jobs by their value to the organization, suitable for small organizations with few jobs.
• 📖 The classification method uses written job class descriptions to categorize jobs, requiring subjective judgments to develop class descriptions.
• 📝 The point factor method is the most popular, assigning points to compensable factors within jobs, and is favored for its simplicity and quantification of job elements.
• 📉 Despite its effectiveness, the point factor method has been criticized for potentially reinforcing traditional and rigid organizational structures.
• 🔄 There is a trend towards market pricing as companies seek to ensure market competitiveness in their compensation practices.

Q & A

What is job evaluation?

Job evaluation is the systematic process of determining the relative worth of jobs within an organization.

What is the outcome of job evaluation?

The outcome of job evaluation is the development of an internal pay structure or hierarchical ranking of jobs.

What are the two major schools of thought in job evaluation?

The two major schools of thought in job evaluation are market-driven and job worth systems.

How does market pricing determine pay in a compensation system?

In a market-driven compensation system, the going rate identified by market research is the primary determinant of pay.

What is the primary determinant of pay in a job worth system?

In a job worth system, the primary determinant of pay is the value of the job to the organization.

Why is it important to compare pay practices to the external market?

Comparing pay practices to the external market ensures that an organization's compensation practices remain competitive and aligned with industry standards.

What are the four methods of job evaluation mentioned in the script?

The four methods of job evaluation mentioned are ranking, classification, point factor, and market pricing.

How does the ranking method of job evaluation work?

The ranking method places jobs in order from highest to lowest by their value to the organization, considering the entire job rather than individual components.

What is the classification method of job evaluation?

The classification method uses written descriptions of job classes and places each job into the category that it best matches.

Why is the point factor method the most widely used job evaluation method?

The point factor method is the most widely used because it is relatively simple to use and considers the components of the job rather than the total.

What is the main criticism of point factor systems?

Point factor systems have been criticized for reinforcing traditional organizational structures and job rigidity.

Why are companies moving towards market pricing?

Companies are moving towards market pricing to use market pay data to identify the relative value of jobs based on what other employers pay for similar work, ensuring market competitiveness of compensation practices.

Outlines

00:00

📈 Introduction to Job Evaluation

This segment introduces the concept of job evaluation, which is a systematic process to determine the relative worth of jobs within an organization. The goal of job evaluation is to establish an internal pay structure or a hierarchical ranking of jobs. It serves as the foundation for designing base pay structures. Two major approaches are discussed: market-driven and job-worth systems. Market-driven systems focus on the going rate identified by market research, while job-worth systems consider the value of the job to the organization. Both strategies are essential for building base pay structures and maintaining internal equity or reflecting external market pay practices.

Keywords

💡Job Evaluation

Job evaluation is a systematic process used by organizations to determine the relative worth of jobs. It is foundational to designing base pay structures and involves comparing jobs against certain criteria to establish their value within the company. In the script, job evaluation is highlighted as a process that results in an internal pay structure or hierarchical ranking of jobs, which is essential for setting up equitable compensation systems.

💡Internal Pay Structure

An internal pay structure refers to the hierarchy of compensation for various jobs within an organization. It is developed based on the outcomes of job evaluation and helps in maintaining internal equity among employees. The script mentions that the outcome of job evaluation is the development of such a structure, which is crucial for organizations to ensure that employees are compensated fairly relative to each other.

💡Market Pricing

Market pricing is a strategy in job evaluation that uses data from the labor market to determine the pay rates for jobs. It focuses on the 'going rate' identified by market research. The script explains that market pricing is one of the two major schools of thought in job evaluation, where the pay is primarily determined by what other employers are paying for similar positions.

💡Job Worth Systems

Job worth systems are strategies that consider the value of a job to the organization when determining pay. The script describes two types: market-driven and internally driven systems. Job worth systems are essential in building base pay structures and help organizations align compensation with the value that jobs bring to the company.

💡Market-Driven Compensation

Market-driven compensation is a system where the primary determinant of pay is the rate at which similar jobs are compensated in the market. The script notes that this system uses market pricing data but does not involve job evaluation points, focusing instead on external market rates to set pay.

💡Internally Driven Job Worth Systems

Internally driven job worth systems prioritize maintaining internal equity in pay structures. The script contrasts this with market-driven systems, highlighting that internally driven systems focus on how jobs contribute to the organization's internal structure and needs rather than external market rates.

💡Ranking Method

The ranking method is a simple job evaluation technique that involves ordering jobs from highest to lowest based on their value to the organization. The script mentions that this method is quantitative and considers the entire job rather than individual components, making it suitable for small organizations with a limited number of jobs.

💡Classification Method

The classification method involves categorizing jobs into written descriptions of job classes. Each job is slotted into the category that it best fits, as described in the script. This method requires subjective judgments to develop class descriptions and can be likened to shelving books, where each job is placed into the most appropriate category.

💡Point Factor Method

The point factor method is a widely used job evaluation approach that assigns points to compensable factors within a group of similar jobs. The script explains that compensable factors are dimensions that are part of every job and can be rated, such as education and experience levels required for successful job performance. This method is popular because it is relatively simple and quantifies job elements effectively.

💡Compensable Factors

Compensable factors are aspects of a job that can be evaluated and rewarded in terms of compensation. The script defines these as dimensions that are part of every job, such as the level of education or experience required. These factors are used in the point factor method to assign values to different jobs, contributing to a fair and structured pay system.

💡Market Pricing Data

Market pricing data refers to information on pay rates for specific jobs in the external labor market. The script emphasizes the importance of identifying relevant market pay data to determine the relative value of jobs. This data is crucial for market pricing strategies, helping organizations ensure that their compensation is competitive with industry standards.

Highlights

Job evaluation is a systematic process to determine the relative worth of jobs.

It leads to the development of an internal pay structure or hierarchical ranking of jobs.

Job evaluation provides the foundation for designing base pay structures.

There are two major schools of thought in job evaluation: market-driven and job-worth systems.

Market pricing uses market data for jobs without job evaluation points.

Job worth systems use market pricing data but with job evaluation points.

Internally driven systems focus on maintaining internal equity.

External market-driven systems reflect how the outside world pays for positions.

It's important to compare pay practices to the external market.

A base pay structure is developed using the compensation philosophy and job analysis procedures.

Market pricing focuses externally while job evaluation focuses internally.

There are four methods of job evaluation: ranking, classification, point factor, and market pricing.

The ranking method places jobs in order by their value to the organization.

The classification method uses written descriptions of job classes to categorize jobs.

The point factor method is the most widely used and assigns weights to compensable factors.

Compensable factors are dimensions that can be rated for each job, like education and experience.

The point factor method is simple, quantifies job elements, and is better than ranking and classification.

Market pricing is becoming more popular as it uses market pay data to identify the relative value of jobs.

Market pricing ensures market competitiveness of compensation practices.

A market-based approach balanced with internal alignment enables more reliable pay grades and ranges.

There may not always be a perfect match for each job in the external market, introducing some subjectivity.

Transcripts

[Music]

HR Basics is a series of short lessons

designed to highlight what you need to

know about a particular Human Resource

Management Topic in this HR Basics we'll

Define job evaluation and explore the

methods for determining the relative

worth of

jobs job evaluation is the systematic

process of determining the relative

worth of jobs the outcome of job

evaluation is the development of an

internal pay structure or hierarchical

ranking of

jobs job evaluation provides the

foundation to design base pay structures

there are two major schools of thought

and job evaluation Market driven and job

worth systems these strategies help us

build base pay structures first market

pricing uses market pricing data for

jobs but without jobal Val ation points

in a market-driven compensation system

the going rate identified by market

research is the primary determinant of

pay and then number two job evaluation

which uses market pricing data for jobs

but with job evaluation points in this

job worth system the primary determinant

of pay is the value of the job to the

organization each yield different

results internally driven job worth

systems will air on the side of

maintaining internal equity in external

Market driven systems will air on the

side of reflecting how the outside world

pays for the position whether an

organization uses an internally or

externally driven pay system it's

important to compare pay practices to

the external

Market a base pay structure is developed

using the compensation philosophy and

job analysis procedures of an

organization to drive job evaluation

decisions the results of job evaluation

are used to design pay structures

including pay grades and ranges market

pricing has an external Focus while job

evaluation has an internal Focus as you

see labeled in this diagram job

evaluation looks at pay levels within an

organization and market pricing looks

outside of the organization both methods

use relative comparisons to determine

the worth of jobs to an

organization as you see here there are

four methods of job evaluation let's

take a look at each starting with job

evaluation methods with an internal

Focus the ranking method is a simple

system that places jobs in order from

highest to lowest by their value to the

organization this is a quantitative

method in which the entire job is

considered rather than individual

components the ranking method generally

is more appropriate for a small

organization that has relatively few

jobs the classification method of job

evaluation uses written descriptions of

job classes in which each job job is put

into a category that it best matches

think of it as bookshelving a major

difficulty with this method is that

subjective judgments are needed to

develop class descriptions that then you

place job descriptions

in the most widely used job evaluation

method is the point factor method which

looks at compensable factors in a group

of similar jobs and assigns weights or

points to them a compensable factor

identifies a dimension that is part of

every job that can be rated for each job

for example all jobs require some level

of education and experience for

successful performance the point factor

method is the most popular job

evaluation approach because it's

relatively simple to use and considers

the components of the job rather than

the total however point factor systems

have been criticized for reinforcing

traditional organizational structures

and job rigidity although not perfect

the point factor method is generally

better than ranking and classification

methods of job evaluation because it

quantifies job

elements well the point factor method

has served employers well for many years

the trend is moving towards a more

externally focused approach more

companies are moving to market pricing

which uses Market pay data to identify

the relative value of jobs based on what

other employers pay for similar work key

to market pricing is identifying

relevant Market pay data for jobs that

are good matches with the employer jobs

the switch to market pricing is a

strategic compensation decision can

ensure Market competitiveness of

compensation practices those who argue

in favor of the popularity of market

pricing suggest that a market-based

approach balanced with some internal

alignment will enable more reliable pay

grades and ranges however there will not

always be a perfect match for each job

in the external market so some

subjectivity does exist

[Music]