Job Evaluation and Market Pricing
Job evaluation and market pricing are two important processes used in compensation management to determine the relative worth of various positions within an organization and to ensure that salaries and benefits are competitive in the job market.
Job Evaluation
Job evaluation is a systematic process used to assess the relative value or worth of different jobs within an organization. This process involves analyzing various factors such as job responsibilities, skills required, working conditions, and qualifications needed for each position. There are different methods of job evaluation, including:
- Job Ranking: Jobs are ranked based on their importance or value to the organization.
- Job Grading or Classification: Jobs are grouped into predetermined categories based on factors such as skill level, responsibility, and complexity.
- Point Factor Method: Jobs are evaluated based on various factors like skill, effort, responsibility, and working conditions, with points assigned to each factor.
Market Pricing
Market pricing, also known as market analysis or benchmarking, involves comparing the salaries and benefits offered for similar jobs in the external job market. This process helps organizations ensure that their compensation packages are competitive enough to attract and retain talent. Key steps in market pricing include:
- Collecting Data: Gathering information on salaries, benefits, and compensation practices for comparable jobs from various sources such as salary surveys, industry reports, and job postings.
- Analyzing Data: Analyzing the collected data to determine the market rates for different positions based on factors like industry, location, company size, and job requirements.
- Adjusting Compensation: Using the market data to adjust the organization’s compensation structures to ensure they are aligned with market rates and remain competitive.
By combining job evaluation with market pricing, organizations can establish fair and competitive compensation structures that accurately reflect the value of each position within the organization while also ensuring they remain attractive to potential candidates in the job market. This helps in employee motivation, retention, and overall organizational success.
Business model
A business is an organization or entity engaged in commercial, industrial, or professional activities with the aim of generating profit. The core elements of a business typically include offering products or services to customers in exchange for money or other forms of value, managing resources such as finances, human capital, and physical assets, and aiming for sustainable growth and success.
Grading in a business model refers to the process of assessing or evaluating various aspects of the business, its products, services, or performance. Grading can play several important roles within a business model:
- Quality Control: Grading helps ensure that products or services meet certain standards of quality. By assessing the quality of goods or services, businesses can maintain customer satisfaction, build trust, and enhance their reputation.
- Performance Evaluation: Grading can be used to evaluate the performance of different aspects of the business, such as individual employees, departments, or business processes. This evaluation helps identify areas of strength and weakness, enabling the business to make informed decisions for improvement.
- Market Positioning: Grading can also be used to assess the business’s position within the market or industry. By comparing its performance, offerings, or reputation with competitors, a business can identify opportunities for differentiation and improvement.
- Risk Management: Grading can help businesses identify and mitigate various risks, including financial risks, operational risks, and reputational risks. By grading different risk factors, businesses can develop strategies to minimize potential negative impacts.
- Decision Making: Grading provides valuable data and insights that can inform strategic decision-making within the business. Whether it’s deciding on product improvements, resource allocation, or market expansion, grading helps business leaders make more informed choices.
Overall, grading plays a crucial role in a business model by providing valuable feedback and insights that drive continuous improvement, enhance performance, and support long-term success.
The Abell Model, developed by Derek Abell in the 1980s, is a framework used in strategic management and marketing to analyze and understand a business and its environment. It consists of three dimensions:
Customer Groups: This dimension focuses on identifying the different customer segments or groups that the business serves or intends to serve. Understanding the needs, preferences, and characteristics of these customer groups is essential for effective marketing and strategy development.
Customer Needs: This dimension involves identifying the specific needs, wants, and demands of the customer groups identified in the first dimension. It requires a deep understanding of what drives customer behavior and what they seek from products or services.
Technologies/Competencies: This dimension focuses on the technologies, competencies, or core capabilities that the business possesses or can develop to meet the needs of its target customer groups effectively. It involves assessing the organization’s strengths and weaknesses in terms of resources, skills, and technology.
By analyzing these three dimensions, businesses can identify strategic opportunities and formulate strategies that align with their strengths and capabilities while addressing the needs of their target customers. The Abell Model provides a structured approach to strategic analysis and helps businesses develop a clear understanding of their competitive advantage and market positioning.
Popular job evaluation techniques
Both Hay Group (now part of Korn Ferry) and Mercer are well-known human resources consulting firms that offer job evaluation services. While they may have proprietary methodologies, they often use variations or combinations of established job evaluation techniques. Here’s how each of them typically approaches job evaluation:
Hay Group Method:
- The Hay Group developed the Hay Guide Chart-Profile Method, commonly known as the Hay System, which is a point factor method of job evaluation.
- Jobs are evaluated based on three factors: Know-How, Problem Solving, and Accountability.
- Each factor is divided into sub-factors, and jobs are rated on each sub-factor using a predetermined scale.
- Points are assigned to each sub-factor based on its importance to the job, and the total points determine the job’s relative value within the organization.
- The Hay System is widely used for its systematic approach and flexibility in accommodating various job roles and organizational structures.
Mercer Method:
- Mercer offers several job evaluation methodologies, including the Mercer Job Evaluation System (MJES) and the Mercer International Position Evaluation (MIPE).
- The MJES is a point factor system that evaluates jobs based on factors such as skill, effort, responsibility, and working conditions.
- Jobs are assigned points for each factor, and the total points determine the job’s relative value and salary range.
- The MIPE system is used for evaluating international positions and considers factors such as market data, business strategy, and organizational structure.
- Mercer’s methodologies often incorporate market pricing data and global best practices to ensure that job evaluations are aligned with industry standards and market trends.
Both Hay Group and Mercer are respected authorities in the field of human resources consulting, and their job evaluation techniques are widely used by organizations around the world to establish fair and competitive compensation structures. However, the specific details of their methodologies may vary based on client needs, industry standards, and regional considerations.
If you liked the article, you can support the author by clapping below 👏🏻 Thanks for reading!
