If you read nothing else, read this…
- Organisations that establish a pay grading structure based on job evaluations could reduce the total cost of their pay bill by between 3% and 10%.
- Job evaluations could help employers address equal pay in the workplace.
- Employers that link job evaluations with reward can ensure that staff are compensated according to the skills their job requires.
Using job evaluations to set pay grades can clear the way to fair reward for staff and may even cut the total wage bill, says Nicola Sullivan
Linking job evaluations with reward can be an effective way for employers to control pay costs. Those that establish a pay grading structure based on an analysis of job roles could cut their total pay bill by between 3% and 10%.
But employers should not expect to make that sort of saving immediately. Such an exercise can reveal that a significant number of staff are being underpaid, for example, and should therefore be due for a pay rise.
Daniel Hibbert, director in HR services at PricewaterhouseCoopers (PWC), says: “If an employer is thinking about implementing a pay grading structure, it needs to take a longer-term view. It will not necessarily save costs in the first year, but will manage costs better over a longer period. Some people will be underpaid, so the employer needs to pay them more. For those that are overpaid, it would not take that money off them straight away and normally, after two or three years, the pay will [realign] to where it should be.”
Organisations that establish pay grades with the aim of tapering down salary levels because they have been historically above the market value may choose to adopt an even longer-term approach, reducing the creep of base salary until it is aligned with the marketplace. Stuart Hyland, UK head of reward at Hay Group, says: “It is not always about reducing salary levels and is perhaps about limiting the growth of base salary. In the case of one [employer], we are trying to use variable pay and leverage it much more effectively. As the market grows over the next few years, the intention is that pay ranges might not move that much, if at all, so the market will catch it up in five years or so.”
Reporting the gender pay gap
An analysis of job roles can also help an employer ensure it meets its requirements under the Equality Act 2010, which will make it compulsory for organisations with more than 250 staff to report on the gender pay gap by 2013. “Employers need a basis for justifying differences in pay, whether or not they are trying to control costs,” says Hibbert.
If an organisation wants to address equal pay matters during a job evaluation process, it must recognise that although men and women might carry out different kinds of tasks, their job roles may add equal value to the business. “If the work is of equal value, the only way to assess that is through job evaluation,” says Hyland.
Some employers might choose to analyse the job roles of certain staff. Such segmentation can be a useful way to introduce pay grades for groups of employees with rigid and prescriptive job roles, or to ensure pay is set appropriately for the best-performing staff. Business services firm Serco, for example, overhauled its remuneration package for 500 senior staff after ranking their job roles using a points-based system.
But employers must ensure they do not demotivate their most talented staff by placing them in the top pay band but with limited opportunity to progress. “If an employer has very high-performing people at the top of the business, the last thing it wants to do is say ‘thanks for everything, but there is no more for five years’,” says Hyland. “Those staff will go.”
Analytical job evaluation
Employers must also consider the method they use to examine job roles, says Dan Wilson, director of consulting at Northgate Arinso. An analytical job evaluation is the most robust method, but often the most onerous and time-consuming. This involves a trained job analyst interviewing the job holder or their manager to develop a good understanding of the role. A well-recognised methodology would then be applied to the job to look at knowledge requirements, responsibility and the working environment. Employers can then grade roles depending on the scores at the end of the process.
Alternatively, employers could use a job-levelling approach, whereby jobs are simply scored against five criteria. Other organisations might prefer to conduct an analysis of 20 roles in the workforce and use these as a guide to slot in the remaining roles.
“The first thing an employer needs to do is really understand all the jobs in the organisation,” says Wilson.
Once they have formulated a framework for a pay grading structure, employers must make sure they communicate the changes well. Poor communication can lead to more appeals and queries from staff, says Hyland. These can be lessened if employers explain the criteria used to decide a pay band.
Clearly, long-term thinking is essential for employers that want to reduce their pay bill by fusing reward with job evaluations.
Case study: Stannah gets a lift in fair pay
Stannah Stairlifts conducted a review of the roles of 320 hourly-paid employees to ensure its pay structure still reflected the skills required to do the work.
Working in conjunction with NorthgateArinso, the firm identified all the different posts before holding discussions with employees from each role and their managers. The information gathered was used to inform each job evaluation. Once all the roles had been evaluated, they were arranged in an order that reflected the skills required to perform them.
As a result, Stannah Stairlifts has developed a new pay structure, which is competitive and accurately aligned with the tasks staff carry out. Catriona Heathcock, HR director at the company, says: “We had a grading structure in place, but over the years it had started to drift.
“This had potential problems within departments, where any perceived unfairness about pay would be a problem.
“An accurate evaluation in the context of the present-day skills was therefore required, including a new look at the differences between roles.”
Tips for conducting job evaluations
- Employers should ensure they communicate any pay changes effectively to staff to reduce the number of appeals and queries.
- Job evaluations can be onerous and time-consuming, so organisations must ensure they choose the methodology and approach that best suits their business needs.
- Knowledge requirements, responsibility and the working environment are among the factors employers should consider when categorising job roles.
- Organisations should be careful not to demotivate senior staff by locking them into the top grade with no room to progress.
Read more about reward