JOB EVALUATION IN ORGANIZATIONS:OTHER METHODS OF VALUING JOBS

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OTHER METHODS OF VALUING JOBS

Market-Based Pay Systems

For every organization, prevailing wages in the labor market will affect compensation. For some jobs and some organizations, market wage levels and ability to pay are virtually the only determinants of compensation levels. An organization in a highly competitive industry may, by necessity, merely price jobs according to what the market dictates. For most companies, however, to take all their jobs (which may number in the hundreds or thousands) and compare them to the market is not realistic. One can only imagine the effort required for a company to conduct and / or participate in wage surveys for thousands of jobs every year. Alternatively, one computer company was able to slot thousands of jobs into 20 pay grades using a version of the point factor method.

Market pricing basically involves setting pay structures almost exclusively through reliance on rates paid in the external market. Employers following such an approach typically match a large percentage of their jobs with market data and collect as much summarized market data as possible. Opting for market pricing usually reflects more of an emphasis on external competitiveness and less of a focus on internal consistency (the relationships among jobs within the firm).

Market pricers often use the ranking method to determine the pay for jobs unique to their firms. Often called rank to market, it involves first determining the competitive rates for positions for which external market data is available and then slotting the remaining (nonbenchmark) jobs into the pay hierarchy. At Pfizer, for example, job analysis results in written job descriptions. This is immediately followed by labor market analysis and market pricing for as many jobs as possible. After that, the internal job relationships are reviewed to be sure they are ‘‘reasonable in light of organization needs.’’ The final step is pricing those jobs not included in the survey. These remaining jobs are compared to the survey positions ‘‘in terms of their total value to Pfizer.’’ This internal evaluation seeks to ensure consistency with promotion opportunities and to properly reflect ‘‘cross-functional job values’’ (e.g., production vs. clerical jobs).

Knowledge-Based Pay Systems

As we indicated earlier, some organizations consider individual employee characteristics, in accord- ance with internal organizational factors and external market conditions, in setting pay rates. Increas- ing foreign and domestic competition and rapid technological change have inspired innovative individual and team pay-for-performance and knowledge- and skill-based pay systems. Such systems are posited to engender (1) greater mutual commitment between individuals and organizations, and (1) stronger linkages between the rewards given to employees and the performance of the organi- zation.

Technically, knowledge-based pay systems do not involve job evaluation. Instead, they are an alternative to systems that do involve job evaluation. Knowledge-based pay systems pay employees based on what they know rather than what particular job they are doing (Gupta., et al 1986). Generally, such systems base pay on the depth of knowledge in a particular field (e.g., scientists and teachers) (Luthans and Fox 1989). For instance, all else equal, a sixth-grade teacher with a Master’s degree will be paid more than a sixth-grade teacher with a Bachelor’s degree under this system.

Skill-Based Pay Systems

Similarly, skill-based pay systems reward employees for their breadth of knowledge pertaining to different jobs (e.g., proficiency in a number of various production jobs). For instance, if one person could operate machines A, B, and C, she may be paid $15 per hour (even if she only works on machine A all year). Her colleague may be qualified to work on machines A and C, and therefore he would only make $13 per hour (even if he worked on both machines over the course of the year). As can be seen, pay is driven by the quantity of tasks a person is qualified to perform.

The chief advantages of knowledge- and skill-based pay systems are leaner staffs and greater flexibility in scheduling. Advocates claim they benefit employees: job satisfaction increases because employees get a sense of having an impact on the organization, and motivation increases because pay and performance are closely linked. Potential disadvantages include higher pay rates and in- creased training costs, the administrative burden of maintaining records, the erosion of knowledge / skills if not used, and the challenge of managing an equitable job rotation. These disadvantages may or may not be offset by having a leaner workforce and greater productivity.

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