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Job Evaluation, Pay Equity and the Salary Market

Most salary administrators inherit a job evaluation process that has been in place for years, after any questions about the validity of the plan have long since been settled. Any new reviews typically are conducted with the help of a consulting firm. The validity of the job evaluation plan is tested by reference to the firm’s reputation and prior applications. There are no validation statistics, and confirmation of the suitability of the plan is based on acceptance of the job evaluation results.

There are some situations in which this confidence in the methodology is not shared by all participants:

  • The gender pay gap creates the suspicion that equal pay for work of equal value (i.e., pay equity) is not in place. Some advocates assume that current pay determination methods are biased. The resulting debate creates the need for a more thorough understanding of the point-factor method of job evaluation.
  • Union-management job evaluation reviews typically involve negotiation of job evaluation methods.
  • Public-sector reviews often involve discussions and debate of job evaluation methods.

Separate pay policies for groups of employees have been common. Explicit or implicit job families can be based on factors such as type of work or gender. These job families complicate the analysis of equity. Pay differences may be the result of pay relativity (a job evaluation issue) or a difference in pay level (a pay policy issue). This difference requires some careful thought. Another section in this article explains how the point-factor method of job evaluation provides a policy framework to deal with this question.

The author has observed some situations in which participants have defined their own compensable factors based on their opinion of equity. An analysis of a union job evaluation plan in another section in this article defines the implications of this approach and illustrates some unintended consequences.

This article develops a challenge to the conventional wisdom that internal and external equity are separate, parallel objectives in salary administration. The validity of a job evaluation plan is based on pay relationships in the salary market, not on opinions of internal equity. A comparison among three established job evaluation plans in this article provides a basis for this definition of validity. The comparison starts with a sample of positions that are paid at the median of the salary market. The application of the job evaluation plans is analyzed in relation to that standard.

CONDUCTING THE REVIEW

Job Evaluation Plans
Comparisons were conducted among the following job evaluation plans:

  • Aiken Plan: Developed in Chicago in 1946, the management consulting firm of Stevenson & Kellogg applied the plan across Canada for more than 40 years. This plan is an example of Canadian practice in the public and private sectors.
  • Chicago Plan: Developed in Chicago in the 1930s, this plan was in continuous use for more than 60 years. It is an example of U.S. practice, primarily in the manufacturing sector.
  • Union Plan: Similar to the plan recommended by the Canadian Union of Public Employees (CUPE), the Union plan is advertised as a gender-neutral plan. This type of plan has been applied across Canada in the public sector.

Salary Market
A national survey of administrative and technical positions in Canada was reviewed. Twenty specifications, ranging from entry-level clerk to senior accountant, were selected. Survey data throughout a 10-year period in the 1980s provided a comprehensive definition of pay relativity. That relativity was confirmed in subsequent reviews through 2010. Positions that would have been matched to the survey specifications were evaluated with each plan. This is not a detailed analysis of job content but will serve to illustrate broad differences among the plans.

RESULTS OF THE REVIEW

Comparison: Factor Selection
The Aiken and Union plans have 10 factors and the Chicago plan has 15 factors in a matrix format. The more detailed factors in the Chicago plan are included in summary form in the Aiken plan, and are summarized in Table 1.

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The responsibility factors of Initiative and Scope of Supervision that are not included in the Union Plan affect the accuracy of the results for a few positions. But, given the range of job content in this sample, it is not a major concern. The omission of Manual Dexterity in the Aiken Plan is a problem for content validity and makes a claim for gender neutrality problematic.

The Mental Effort Factor in the Union Plan is a clear departure from the other two plans. The Chicago Plan includes this definition: “Mental fatigue is credited in the work complexity component. The factor is defined in terms of physical fatigue and exertion.” The original Aiken Plan defined the factor as Physical Demand. By 1973, the factor still was titled Physical Demand, but the guidelines for degrees 2 and 3 included reference to visual attention and/or mental concentration. By 1982, an update of the manual for the Canadian Government, after consultation with the Canadian Human Rights Commission, showed the title as Physical and Mental Demand and increased emphasis was placed on mental concentration. However, the basic structure of the factor was the same as the 1973 edition.

The Union Plan continues this progression with a separate factor for mental effort. The addition of this factor has a significant effect on the skill differential between mid-level and senior positions. This effect is analyzed in another section of this article.

Comparison: Factor Weights
Table 2 shows the allocation of points by general factor. This comparison summarizes the nominal weight of the factors and any variation in degree definitions. The Chicago and Aiken plans show a similar distribution, while the Union plan is higher in skill and effort and lower in responsibility. There is no accepted standard for this distribution. The significance of the differences will be analyzed in another section of this article.

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The reasons for the differences in the Union Plan are:

  • Skill: The Union Plan places University at degree 8; the Aiken Plan has it at degree 5. This increases the relative weight for education.
  • Effort: An additional factor in the Union Plan.
  • Responsibility: The weight assigned to accountability in the Union Plan is less than the other plans, and two responsibility factors are removed.

Comparison: Factor Progression
The weighting of the degrees in the Aiken and Chicago plans shows an equal interval (arithmetic progression) for the lower degrees, then an increasing interval (geometric progression) for higher degrees. The Union Plan shows an arithmetic progression for all degrees. The effect of this difference in factor weighting is shown in Figure 1’s internal trend comparisons.

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Application of the Chicago Plan results in a linear trend in relation to the salary market. The Aiken Plan has the same relationship. In fact, the Aiken Plan produced a linear trend in 1950 and the same linear relationship in the year 2000. Application of the Union Plan results in an upward sloping curve.

If the salary market is the reference point, then the rate of increase in points can be matched to the rate of increase in the salary market. If the rate of the increase is the same, the trend of pay and points is linear. If the rate of increase in points is less than the rate in the salary market, the trend line is an upward sloping curve. An arithmetic progression creates a slower rate of increase than a geometric progression and results in an upward sloping curve.

A curved line in and of itself is not a problem. A problem is created from applying the accepted standard of a linear trend analysis to a curvilinear distribution. This issue is reviewed in the next section.

Comparison: Salary Policy
Pay levels defined by applying these plans are a common base of comparison. In a regular salary policy review, a policy trend line based on salary market comparisons and any internal salary compression issues is specified. Because market data is being used here, the internal trend can serve as a policy trend.

Table 3 illustrates the difference between the salary structures defined by each plan. An explanation of how the differences are created then is reviewed. The Chicago and Aiken plans match pay relationships in the salary market while the Union Plan does not. It’s unclear whether the Union Plan is a reasonable basis for implementation; however, the portrayal of pay levels from mid-level to senior levels could make a case for significant compression of skill differentials. With most of the employees at mid-level, the Union approach provides more money to more employees. The estimate in this sample is similar to the results the author observed in more detailed reviews, in which the cost of moving from a conventional plan to the Union Plan was about 2% to 3% of payroll.

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The similarity between the Chicago and Aiken plans is interesting. The Chicago Plan is in a matrix format; the Aiken Plan lists single factors. The Chicago Plan has more factors that are more detailed than the Aiken Plan. The similar results illustrate that one cannot judge a plan from just the words; there is a need to look at policy outcomes. The results for these plans indicate they were indexed to the same criterion: pay relativity in the salary market.

The reasons for the different Union approach include:

  • The addition of the Mental Effort factor and the use of arithmetic progression create a curvilinear distribution.
  • A significant increase is put on the weighting of effort, and less weight on responsibility.
  • The specification of a linear trend for a curvilinear distribution will show an increase in the middle of the salary structure and decreases at the top and bottom.

The two traditional plans provide a definition of equity as payment on a linear trend of all positions. The plans are neutral in terms of level of pay in relation to the salary market. That policy is reviewed after the job evaluation review is complete. The plans seem to do a good job of defining pay if the objective is to build a competitive pay structure. The plans do not presume a personal value judgment. They are neutral measures of pay relativity in the salary market.

The Union Plan provides a definition of equity as payment on a trend and a definition of an equitable redistribution of income. A salary policy on level of pay is built into the design of their job evaluation plan. This approach appears to be an implicit value judgment to solve a social issue, not a change that supports the effectiveness of the organization.

IMPLICATIONS

Implicit Gender-Based Job Families
In reviewing an old file of a manufacturing client, the author noted that in the early 1950s there were separate male and female wage structures. The numbers in the Table 4 are hypothetical but illustrate the practice.

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The linear trends indicate that pay relativity is similar between the two groups. If this is the case, then job evaluation is not the source of the discrimination. The search for the somewhat elusive concept of gender-neutral words in the job evaluation plan, or introducing new factors such as mental effort, is unnecessary.

The difference in pay was the result of a policy decision to pay, at any given level of job content, one group more than the other. The solution is to define a single policy trend line. This example indicates a need to rely on a more thoughtful approach to pay equity that includes both pay relativity and level of pay. The implication of defending or negotiating factor selection and wording without reference to the salary market is that a linear trend cannot be specified. Questions about level of pay between job families cannot be accurately assessed without this trend analysis.

Table 5 illustrates how the wage structure was changed in the late 1950s.
The company combined the male and female wage structures but did not change any pay relationships. A separate job family is not visible until it is defined by a job evaluation analysis. Figure 2 illustrates the pay difference.

This example was constructed to show that pay relativity is the same between the two groups. The difference in pay was the result of a policy decision to pay, at any given level of job content, one group more than the other. The solution is to define a single policy trend line. There is an easy assumption made by some advocates that the wording of evaluation plans is not gender neutral and that this bias is the reason for pay differences. There is a need to rely on a more thoughtful approach that includes both pay relativity and pay level.

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The implication of defining or negotiating factor selection and wording without reference to the salary market is that a linear trend cannot be specified. Questions about level of pay between job families cannot be accurately assessed without this trend analysis.

OCCUPATIONAL JOB FAMILIES

Separate salary policies for groups of positions commonly are defined by type of work or occupation. The work activities are so different between these groups that it is difficult to find common elements. However, job evaluation results show that pay relativity is the same within administrative and technical groups.

There are no job family differences in the salary market for administrative and technical positions. Salary survey data show that pay relativity is the same across clerical, accounting, IT and technical positions. Pay relativity was constant over time, and across manufacturing, nonmanufacturing and public sectors (resource industries show a slightly different pattern). That is why these traditional plans have remained the same for decades and have been applied to a variety of organizations. Job families may only be required in exceptional circumstances.

This stable relativity is the criterion for job evaluation plan design. This criterion is lost if an assumption is made that internal equity is the only criterion for job evaluation plan design and that participants’ opinions can define that criterion. In fact, the process of defining compensable factors from the opinion of employees is not job evaluation. It is simply a more elaborate form of negotiating a salary structure.

ACCOUNTABILITY

There are probably three reasons why the Union approach was not met with a more effective response from management:

  • A pragmatic theory that explains the methodology is not available from consulting firms or the literature on the subject.
  • Job evaluation is typically separated from collective bargaining to protect the legitimacy of the process. This can limit management’s ability to challenge the salary policy implications of the process.
  • There is a convention in job evaluation that only work activities are considered; pay levels are not part of the discussion. This convention can carry over to the design of the plans.

Management may be collaborating, but the union is negotiating. The union’s bargaining mandate is built into its job evaluation plan. Collaboration is useful, but only after the plan design has been negotiated.

EQUITY

There are a wide range of issues that affect perceptions of equity. The limited focus here is on technical issues of job evaluation that define pay for a position. Equity is achieved when:

All positions are evaluated with the same criteria so that comparable positions are placed in the same salary grade.

Pay is defined from the intercept of the evaluation result and a valid policy trend line.

Job evaluation can be manipulated to show a variety of outcomes. The opinions that drive an interest in different outcomes are best dealt with in a discussion of pay level and not with pay relativity. Negotiations over the slope and level of a policy trend provide management with better control over the policy outcomes.

There is no social alchemy that creates value from sharing opinions on compensable factors. That process cannot redefine the concept of value in exchange. There is, however, a trend analysis that can override instances of historical bias for some positions. It is, in effect, an internal equity constraint on salary market comparisons. A valid point-factor job evaluation plan that includes a trend specification should be part of a salary administrator’s tool kit. It will enable the administrator to define and defend both equity and competitive pay.


ABOUT THE AUTHOR

Fred Hilling

Fred Hilling is President of Sander Consulting Services in Vancouver, British Columbia, Canada. He has conducted salary policy reviews in public- and private-sector organizations throughout his career, initially as a principal with Stevenson Kellogg Management Consultants, then with his own firm. His interest now is to provide valid job evaluation methods and training to help organizations improve their salary administration. He has a bachelor’s degree in economics and sociology from the University of British Columbia and an MBA from York University and has conducted extensive research in job evaluation methods.