PART THREE
11
The outcome of a job evaluation exercise is usually a new or revised grade and pay structure. The purpose of this chapter is to describe how job evaluation contributes to the design process for the various types of structures. The chapter starts with definitions of grade and pay structures. It then describes how job evaluation is used in their design – generally and for particular structures. Equal value considerations are dealt with at the end of the chapter.
Grade and pay structures
Grade and pay structures provide a framework within which an organization’s pay policies can be implemented. They enable the organization to determine where jobs should be placed in a hierarchy, define pay levels and the scope for pay progression and provide the basis upon which relativities can be managed, equal pay achieved and the processes of monitoring and controlling the implementation of pay practices can take place. A grade and pay structure can also serve as a medium through which the organization communicates the career and pay opportunities available to employees.
Grade structures
A grade structure consists of a sequence or hierarchy of grades, bands or levels into which groups of jobs which are broadly comparable in value or size are placed. There may be a single structure, which is defined by the number of grades or bands it contains. Alternatively, the structure may be divided into a number of families consisting of groups of jobs where the essential nature and purpose of the work are similar but the work is carried out at different levels.
The main types of graded structures are:
· Multi-graded structures – which consist of a sequence of narrow grades (generally 10 or more). They are also known as narrow- graded structures.
· Broad-graded structures – which have fewer grades (generally six to nine).
· Broad-banded structures – which consist of a limited number of bands (often four to five). Structures with six or more grades are often described as broad-banded even when their characteristics are typical of broad grades.
· Job family structures – which consist of a number of groups of jobs with similar characteristics, each divided typically into six to eight levels. The levels are described in terms of key responsibilities and knowledge, skill, and competence requirements, and therefore define career progression routes within and between families. There may be a common grade and pay structure across all the families, or pay levels in each family may differ to reflect market rate considerations (this is sometimes referred to as market grouping). The number of levels in families may also vary.
· Pay spines consisting of a series of incremental ‘pay points’ extending from the lowest- to the highest-paid jobs covered by the structure.
Many organizations do not have a graded structure at all for any jobs or for certain jobs such as directors. Instead they use ‘spot rates’ or ‘individual job ranges’. A spot rate is the pay for a job or an individual which is not fitted into a grade or band in a conventional grade structure and does not allow any scope for pay progression. An individual job range is a spot rate in which there is a defined range for pay progression.
Grades, bands or levels may be defined in one or other of the following ways or a combination of them:
· by means of a range of job evaluation points – jobs are allocated to a grade, band or level if their job evaluation scores fall within a range or bracket of points;
· in words which describe the characteristics of the work carried out in the jobs that are positioned in each grade or level – these grade, band or level definitions, often called ‘profiles’, may set out the key activities and the competences or knowledge and skills required at different points in the hierarchy;
· by reference to benchmark jobs or roles that have already been placed in the grade, band or job family level.
Designing grade structures
The design of a grade structure involves deciding on the number of levels required and then defining each level to provide guidance on the level appropriate for the job being evaluated. As discussed below, the approaches used differ according to what type of scheme is used, either matching/levelling or point-factor. These methods are also used in the design of a job family structure as described in the next section of this chapter.
Grade structure design when a job-to-grade matching or a levelling approach is used
In job-to-grade matching, the structure design can be based on an a priori view that is made empirically by reference to the existing hierarchy or a belief that the present number of grades should be reduced to a more manageable number. It is preferable to base the decision on a ranking of benchmark posts, possibly using paired comparisons, and an analysis of the clustering of jobs based on the identification of common characteristics. The ranked jobs are then divided into grades according to views on the number of distinct levels of responsibility that exist in the organization. The descriptors for each level of the structure (the level or grade profiles) generally refer to the factors or elements used in the scheme (an example is given in Chapter 8, Table 8.3).
In the DMA version of levelling as described in Chapter 9 the structure is pre-determined by reference to the hierarchy of distinct levels of accountability in the organization.
Grade structure design following a point-factor job evaluation exercise
A structure can be designed following a point-factor job evaluation exercise that will produce a rank order of jobs according to their scores. A decision then has to be made on where the boundaries that will define grades should be placed in the rank order. So far as possible, boundaries should divide groups or clusters of jobs which are significantly different in size so that all the jobs placed in a grade are clearly larger than the jobs placed in the next lower grade and smaller than the jobs in the next higher grade. But this process is not scientific and it is rare to find a situation where there is one right and obvious answer.
A method that is often recommended is to analyse the distribution of scores in an attempt to identify any significant gaps in the scores between adjacent jobs. These natural breaks, if there are any, will then constitute the boundaries between clusters of jobs that can be allocated to adjacent grades. A distinct gap between the highest-rated job in one grade and the lowest-rated job in the grade above will help to justify the allocation of jobs between grades. It will therefore reduce boundary problems leading to dissatisfaction with gradings when the distinction is less well defined. However, in practice, convenient clusters of jobs that form natural breaks may not exist.
In these circumstances the following guidelines should be considered when deciding on boundaries:
· Jobs with common features as indicated by the job evaluation factors are grouped together so that a distinction can be made between the characteristics of the jobs in different grades – it should be possible to demonstrate that the jobs grouped into one grade resemble each other more than they resemble jobs placed in adjacent grades.
· The grade hierarchy should take account of the organizational hierarchy, ie jobs in which the job holder reports to a higher-level job holder should normally be placed in a lower grade although this principle cannot be followed slavishly when an organization is over-hierarchical with, perhaps, a series of one-over-one reporting relationships.
· Ideally the boundaries should not be positioned immediately above jobs in which large numbers of people are employed, or if they are, there needs to be a convincing reason for the positioning of the boundary otherwise it may be difficult to resist the large number of requests for upgrading that may take place.
· The boundaries should not be placed between jobs mainly carried out by men and jobs mainly carried out by women.
· The grade width in terms of job evaluation points should represent a significant step in demand as indicated by the job evaluation scheme – there is no need for each grade to have the same number of points, but if there are large differences between grades the reasons for creating such differences may be subject to question.
By far the majority of the respondents to the 2017 e-reward job evaluation survey (68 per cent) allocate jobs to grades or bands by reference to definitions of grade boundaries expressed in terms of job evaluation points. The rest use some form of matching.
An example of a structure based on a point-factor scheme is given in Chapter 8, Table 8.4.
The role of job evaluation in the design of job family structures
The design of a job family structure starts by a decision on what separate families should be included in the structure. These may consist of the major functions but when there are some linked occupations that are particularly subject to market rate pressures, they can be treated as separate market groups so that competitive rates of pay can be fixed for the jobs concerned. The grades within job families are defined in the same way as those in a conventional structure, ie either by a range of job evaluation scores or by a grade profile. But profiles will focus on knowledge, skill and ability (KSA) requirements at each level in order to define career paths.
Pay structures
Pay structures define the different levels of pay for jobs or groups of jobs by reference to their relative internal value as determined by job evaluation, to external relativities as established by market rate surveys and, sometimes, to negotiated rates for jobs. They provide scope for pay progression in accordance with performance, competence, contribution or service.
A grade structure becomes a pay structure when pay ranges, brackets or scales are attached to each grade, band or level. In some broad-graded structures, ‘grades within grades’ or pay zones are established to limit the scope for pay progression and to align pay to the market rates for the job or jobs placed in the sub-grade.
Pay structures are defined by the number of grades they contain and, especially in narrow-graded structures, the span or width of the pay ranges attached to each grade. Span is the scope the grade provides for pay progression and is usually measured as the difference between the lowest point and highest point in the range as a percentage of the lowest point. Thus a range of £30,000 to £39,000 would have a span of 30 per cent. Elliott Jaques (1961) suggested that this was the optimum range.
Developing pay structures
Multi-graded structures may have pay ranges of, typically, 25 per cent to 40 per cent attached to each grade or level. All jobs placed in a particular grade will be paid within the range for that grade and will progress through the range on the basis of performance, competence, contribution or service. Progression within a range may be limited by thresholds that can only be crossed if defined levels of performance and competence have been achieved. The pay ranges are determined by reference to the existing rates of pay for the jobs allocated to each grade and their market rates. An analysis of market rates forms part of the pay structure design programme but in practice it may not always be possible to get reliable information for all the jobs, especially those for which good external matches are difficult to make.
Designing a multi-graded pay structure
The following steps are required to design a multi-graded pay structure:
1. List the jobs placed within each grade on the basis of job evaluation (these might be limited to benchmark jobs that have been evaluated but there must be an adequate number of them if a proper basis for the design is to be provided).
2. Establish the actual rates of pay of the job holders.
3. For each grade, set out the range of pay for job holders and calculate their average or median rate of pay (the pay practice point). It is helpful to plot this pay practice data as illustrated in Figure 11.1, which shows pay in each grade against job evaluation scores and includes a pay practice trend line.
4. Obtain information on the market rates for benchmark jobs where available. If possible this should indicate the median rate and the upper and lower quartiles.
5. Agree policy on how the organization’s pay levels should relate to market rates – its ‘market stance’. This could be at the median, or above the median if it is believed that pay levels should be more competitive.
6. Calculate the average market rates for the benchmark jobs in each grade according to pay stance policy, eg the median rates. This produces the range market reference point.
7. Compare the practice and market reference points in each range and decide on the range reference point. This usually becomes the mid-point of the pay range for the grade and is regarded as the target or competitive rate for a fully competent job holder in that grade. This is a judgemental process, which takes into account the difference between the practice and policy points, the perceived need to be more competitive if policy rates are higher, and the likely costs of increasing rates.
8. Examine the pay differentials between reference points in adjacent grades. These should provide scope to recognize increases in job size and, so far as possible, variations between differentials should be kept to a minimum. If differentials are too close – less than 10 per cent – many jobs become borderline cases, which can result in a proliferation of appeals and arguments about grading. Large differentials below senior management level of more than 25 per cent can create problems for marginal or borderline cases because of the amount at stake. Experience has shown that in most organizations with conventional grade structures a differential of between 15 and 20 per cent is appropriate except, perhaps, at the highest levels.
9. Decide on the range of pay around the reference point. A conventional arrangement is to allow 15 per cent on either side, thus if the reference point is 100 per cent, the range is from 85 per cent to 115 per cent (a span of 35 per cent). The range can, however, vary in accordance with policy on the scope for progression and if a given range of pay has to be covered by the structure, the fewer the grades the wider the ranges.
10. Decide on the extent, if any, to which pay ranges should overlap. Overlap recognizes that an experienced job holder at the top of a range may be making a greater contribution than an inexperienced job holder at the lower end of the range above. Large overlaps of more than 10 per cent can create equal pay problems where, for example, men are clustered at the top of their grades and women are more likely to be found at the lower end.
11. Review the impact of the above pay range decisions on the pay of existing staff. Formulate protection and assimilation policies. Protection policies usually guarantee that no one loses any pay after a new structure is introduced. Assimilation policies cover how individuals will be fitted into a revised pay structure (further details on these policies were given in Chapter 5). Establish the number of staff whose present rate of pay is above or below the pay range for the grade into which their jobs have been placed and the extent of the difference between the rate of pay of those below the minimum and the lowest point of that pay range. Calculate the costs of bringing them up to the minimum. Bearing in mind protection and assimilation policies, the introduction of a new structure almost inevitably results in an increase in payroll costs – the pay of some people will go up but no one’s pay will go down. Typically, these costs amount to about 3 per cent of payroll. They can be managed down but with difficulty.
12. When the above steps have been completed it may be necessary to review the decisions made on the grade structure and pay reference points and ranges. Iteration is almost always necessary to obtain a satisfactory result from the viewpoint of its cost and how it affects individuals.
FIGURE 11.1 Scattergram of evaluations and pay
Deciding on pay ranges and levels in broad-graded or banded structures
Where the number of grades or bands is limited, which may well be the case if a levelling exercise as described in Chapter 9 has taken place, it will be difficult if not impossible to have pay spans extending over the whole range. In these circumstances, as noted by Brown et al (2016):
Market surveys generally play a key role in determining what range of pay staff in particular functions and locations are paid. In many cases local ‘grades within levels’ are developed to practically manage pay within such broad bands – with literally dozens of ranges for different roles within some of Tesco’s levels for example.
A grade within a level generally takes the form of an individual job range where the mid-point is aligned to the market rate for the job – market pricing – and the range extends on either side, typically by 15 per cent of the mid-point.
Deciding on pay ranges and levels in job family structures
A job family structure can consist of separate job families, each of which has its own grade and pay structure that takes account of different levels of market rates between families (sometimes called ‘market grouping’); or they can consist of different career paths and pay ranges overlaid onto a common grading structure. The size of jobs and rates of pay can vary between the same levels in different job families. Job family structures help organizations to flex pay rates for different occupations to reflect variations in market rates as well as helping to define career paths within job families. Pay levels in job families are usually determined by market pricing.
References
Brown, D, Bevan, S and Rickard, C (2016) A review of pay comparability methodologies, Institute for Employment Studies [Online] https://www.gov.uk/government/publications/a-review-of-pay-comparability-methodologies [accessed 1 May 2017]
e-reward (2017) Job Evaluation Survey, Stockport, e-reward
Jaques, E (1961) Equitable Payment, London, Heinemann