Compensation week 3: Job evaluation

Job evaluation:

Systematic and objective process of comparing jobs with each other to establish its logical worth hierarchy by looking at how big or small it is. This grades the jobs and not the person.

The job evaluation and salary development process is divided into a 2 stage process:

1.     Stage 1 (Internal equity): Job description and Job grading. Job is evaluated and graded with strict grading rules. Inflexible stage.

2. Stage 2 (External equity): Developing a salary structure (evaluate pay and conditions). Management evaluates the individuals with a job and designs a competitive salary structure. Flexible stage where individuals will be places along a pay scale according to the company’s pay progression policy.

Stage 1 (outcome and process)

a.      Outcome: Job or role descriptions and a grade.

b.     Process: Select an evaluation system, communicate the purpose to staff, design forms, write job descriptions, train grading and auditing committees, and grade jobs strictly following rules.

Stage 2

a.      Outcome: A defensible salary structure.

b.     Process: Structure wages/salaries/incentives, align conditions of service, execute an implementation plan, design maintenance procedures, and compile a manual.

Comparison between stage 1 and 2

a.      Inflexible: Grading rules must be strictly observed.

b.     Focus: Evaluates the job content, pretending no incumbent exists.

c.      Nature: Impersonal process.

d.     Primary coniderations: Follow grading system rules and work complexity.

 

a.      Flexible: Individuals can be placed along a scale per progression policy.

b.     Focus: Evaluates the person in the job (performance, effort, track record).

c.      Nature: Personal process.

d.     Primary considerations: Market competitiveness, competence, effort, and scarce skills.

Why do organizations need job evaluation as they grow?

-        To establish a consistent and defensible rationale for pay scales.

-        Ensure equal pay for work of equal value and comply with pay equity legislation.

-        Help employees see how different jobs relate to one another and plot clear career paths.

-        Provide highly detailed information to support organizational design, department restructuring, and recruitment specifications.

Categorization of job evaluation systems:

Job evaluation systems are classified along two dimensions:

-        The basis of comparison (comparing jobs against other jobs, or comparing jobs against a defined scale).

-        The method of analysis (considering the entire job, or breaking it down into job elements/factors).

This creates four primary approaches:

Why job evaluation systems fail:

-        Hierarchy fail due to administrative and managerial errors. The reason for system collapse is when upgrading of jobs to pay employees more without making a change in the job content.

-        Weak top management commitment

-        Lack of employee participation

-        Poor communication

-        Failing to maintain job descriptions

Competence and skills-based pay

Other alternatives for job evaluation systems that reward based on the value an individual brings to the organization.

Competency

Combination of observable, measurable skills, knowledge, behaviors, and personal attributes that drive employee performance and organizational success.

Skill

A tangible, demonstrable technical aspect of competence that is easier to measure and link directly to rewards.

Competency-based pay

Recognize what people accomplish at work rather than simply rewarding them for acquiring credentials.

Objectives of CBP:

Shifts focus from rewarding job size/evaluation to rewarding applied competence. It replaces lost sub-grades in broad-banded structures, lifts employee skill levels, improves return on salary spend, and aligns rewards with organizational values.

CBP is done through 2 frameworks, models:

-        Organization-Wide Generic Competencies: Core behavioral traits (e.g., customer service, teamwork, and business skills) are rated on a standard scale (1–2: Least skilled, 3–4: Not a strength, 5–6: Appropriate skill level, 7–8: A strength, 9–10: Exceptional skill). Movements on these scales are typically rewarded with once-off bonuses.

-        Job Family-Specific Competencies: Written for specific functional groups to outline progression milestones (such as Milestone 1 Learns, Milestone 2 Applies, Milestone 3 Guides, and Milestone 4 Shapes). Moving through these milestones is directly linked to guaranteed base pay.

Decisions when designing CBP:

-        Must decide whether to reward the narrowly defined job, the dynamic cluster of duties that make up a role or the person themselves.

-        Level vs. Growth: Organizations can pay for competency level (paying employees relative to a target standard set for the role) or competency growth (linking base salary increases to the expansion of skills over time).

-        Competencies vs. Results: Because competencies represent enduring behavioral traits, they are best rewarded with enduring pay (base salary). Conversely, results are temporary and should be rewarded with temporary compensation (bonuses).

Difference between performance-based pay and competency-based pay:

PBP:

-        Focus: Focuses on what work is done (results)

-        Time horizon: Looks backwards to reward historical results.

-        Pay decision basis: Pay is determined by comparing results against targets.

-        Target Stability: Performance targets change frequently from year to year.

-        Strategic integration: Integrates individual, team, and corporate goals.

Difference between performance-based pay and competency-based pay: CBP:

-        Focus: Focuses on how work is done (behaviors).

-        Time horizon: Looks forward because competencies predict future success.

-        Pay decision basis: Pay is determined by assessing displayed behaviors.

-        Target Stability: Competency profiles remain highly stable for years.

-        Strategic integration: Integrates core, generic, and functional competence.

Skill-based pay

Used interchangeable with CBP: Focus on tangible, visible, and easily demonstrable technical skills required to perform manual, artisan, or clerical tasks.

SBP encourages a flexible workforce through two primary mechanics:

• The Points Model: All the tasks in a value chain are assigned points based on difficulty. As employees acquire more points, their pay is increased by a set percentage.

• Skill Blocks/Modules: Employees receive monetary pay increases as they master and move through defined clusters of skills.

Ultimately, both CBP and SBP are designed to reward individual capability, encouraging employees to multi-skill and become more versatile assets to the business.

Competency Milestones: Progressive levels used to measure development:

·       Milestone 1 (Learns): Learns role tasks, works co-operatively, depends on direction.

·       Milestone 2 (Applies): Demonstrates full competence/mastery, works independently as a problem-solver.

·       Milestone 3 (Guides): Mentors, coaches, and share expertise with others.

·       Milestone 4 (Shapes): Provides strategic leadership, promotes growth, and sponsors talent.

 

Level vs. Growth Rewards:

·       Rewarding Level: Places employees into pay range zones and compares an employee's actual competency based on target competency standards.

·       Rewarding Growth: Base pay increases are tied to changes in competency levels or reaching developmental goals alongside performance results. MUST be linked to displayed competence and never merely acquired ones.

Why job evaluation systems fail:

·       Due to weak implementation, lack of top management support, absence of employee participation, inadequate administrative support, lack of transparency, failure to review descriptions as jobs change, and most critically upgrading jobs without a corresponding increase in job content ("grade creep").

·       The 20% Re-evaluation Rule: A job should only be re-graded if its content and complexity change by more than 20%.

·       Golden Rules: Job evaluation is systematic, not scientific. Virtually all major global evaluation systems rank relative worth similarly and produce nearly identical hierarchies. Consistent administration and strong governance matter far more than the specific system selected.

High-Performance Organization Continuum & Transition Process:

Implementing integrated competence and skill-based pay requires evolving the organization across a 5-stage organizational maturity continuum:

[Traditional] ➔ [Enlightened] ➔ [Multi-Skilling] ➔ [Self-Sustaining] ➔ [Self-Managed]

 

• Day 1 (Initiation): Focuses on basic multi-skilling, establishing minimal job classifications, facility-level metrics, and team-leader guidance.

• Day 2 (Transition): Cross-training expands to support skills, metrics transition to team-level tracking, and decision-making becomes shared.

• Day 3 (Maturity): Fully self-managed teams handle work allocation, cross-functional tasks, and peer business reviews, supported by team-based reward systems.