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COMP DOCTOR™: Job Evaluation or Market Pricing?

COMP DOCTOR™: Job Evaluation or Market Pricing?

Our organization has been using a structured job evaluation methodology for over 20 years to address issues related to internal equity. While still an issue for some within our organization, others feel that we should be placing more emphasis on market parity. This is starting to become a fairly big issue here and we are trying to figure out which approach is best.

 

Can you offer any guidance or insight that will help us resolve that dilemma?

 


 

This is one of our favorite topics since virtually every organization we work with has to struggle to some degree with the conflicts between internal equity and market parity.

 

In the 1980s, many public-sector organizations tackled the issue of comparable worth (the concept that jobs could be measured and that male and female employees doing comparable work, as opposed to equal work, should be paid alike). More recently, both Massachusetts and California have passed legislation which suggests that jobs should be compared on the basis of relative internal value instead of market data, because the market is biased.

 

Conceptually, job evaluation provides a formal process which creates a job worth hierarchy within an organization. This hierarchy creates a proxy for job value when market value is not known. Clearly, they are two very different approaches (market pricing and job content evaluation). Some of you may use the very sophisticated dart board method, but that really doesn’t count since it is tough to legally defend.

 

Even though the two approaches are different, they do have a couple of things in common. First is the fact that you need to have a current and valid job description (oops, you say you don’t have such a thing?). Well, without a current and valid job description, you cannot accurately evaluate a job against any structured criteria for internal relationship assessment and you will not be able to price the job in the marketplace since you won’t know what you are pricing. Sort of the equivalent of wanting to determine the price of a BMW 5 series but only having information that describes a generic four-door sedan. The information just won’t be relevant.

 

Now, once you have done either the internal assessment or compiled the needed market data (after you updated the job description) then you need to reconcile the internal and the external data unless you don’t care whether or not they line up (something that has been more common in the private sector than in the public sector).

 

The biggest problem we see is reaching a consensus within the organization as to which is the most important. That is why most governments prefer to blend the two approaches. Unfortunately, when you do that, some jobs may actually be paid above market while others may be paid somewhat below market. Then you need to have a mechanism in place to add a market premium or factor so that you can effectively recruit, motivate, and retain employees in those high demand or market jobs without compromising your overall pay plan. Of course, most of your employees will claim they are underpaid and therefore deserve the market premium.

 

Having said all of this, which is best? Well, job content is generally accurate and reliable but requires good job descriptions and is good for organizations with lots of different functions. Market pricing is quick, market-based (assuming you have the stomach to lower salaries when needed as well) since it reflects the current reality. But it requires lots of data to be defensible.

 

However, job content is also internally focused and can be perceived as rigid. Depending on the tool you are using, it can also be time consuming and, dare we even suggest this, but it causes supervisors, managers, and employees to play games to try to manipulate the system. Market pricing, on the other hand, can be a problem if you are the 500-pound gorilla in your marketplace and it can perpetuate gender inequities for those of you who need to address that important issue.

 

Determination of which is best will depend on the size of your organization, whether you are in a union or non-union environment, whether good market data is available, how competitive the market is in your area, the quality of your job descriptions, and the number of jobs involved.

 

Some of our friends prefer job content evaluation and others prefer market pricing. We concur with our friends.

 


 

The Comp Doctor™ is the team of Jim Fox and Bruce Lawson, Managing Directors in the Human Resources & Compensation Consulting practice of Arthur J. Gallagher & Co. They specialize in assisting governments in fixing their compensation and classification systems.

This article originally appeared in the IPMA-HR News in November 2006. It was revised and updated in February 2017.

If you have a question you would like to have them answer, please write to them at jim_fox@ajg.com or bruce_lawson@ajg.com. They will try to include it in a future issue of Comp Doctor™.

Jim Fox

Dr. Fox is a Managing Director of the public sector and higher education compensation part of the Gallagher Human Resources & Compensation Consulting practice. In this capacity, Dr. Fox serves as project director and/or technical advisor, providing technical direction and quality assurance. He is responsible for all consulting activities in the areas of job evaluation and compensation, organization analysis, personnel systems and policy development.

Dr. Fox has been directing classification and compensation studies for more than ...

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Bruce Lawson

Mr. Lawson is a Managing Director of the public sector and higher education compensation service line of the Gallagher Human Resources & Compensation Consulting practice. In this capacity, Mr. Lawson serves as project director and/or technical advisor, providing technical direction and quality assurance. He is responsible for all consulting activities in the areas of job evaluation and compensation, organization analysis, personnel systems and policy development.

Mr. Lawson has been directing classification and compensation studies for more ...

Read Full Bio