In a previous Blog posting, titled, “The Two Main Pillars of Compensation Systems” I had introduced readers to the concept of internal equity as one of the main structural pillars of a Pay System.
In this essay, I will expound on the concept that all traditional methods of achieving internal equity are filled with practical challenges. As such, these methodological frameworks languish quite often under the throes of disrepair. Not uncommonly one finds total frustration and anger from internal stakeholders about these programs. Thus, in my opinion, as is the opinion of a majority of professionals in the modern pay management field, that the only way there is to achieve “internal equity” is to base it on the market value of positions and jobs that are required in an organization to achieve strategic and operational objectives (Market Pricing).
The overall structural and theoretical objective of any base pay system has been to achieve both internal and external equity. For achieving the “internal equity” objective the normal methodology used is what is called classification. The science of classification is called taxonomy. This is how taxonomy is defined in Wikipedia:
The branch of science concerned with classification, esp. of organisms; systematics.
• the classification of something, esp. organisms : the taxonomy of these fossils.
• a scheme of classification : a taxonomy of smells.
Thus one can see the logic of the use of this science in pay systems. What pay systems attempt to do with the use of taxonomic methodologies is to achieve the grouping of work, functions, duties, tasks, knowledge, skills, abilities and behaviors that are rational and logical from the organization’s point of view (not competencies – more on this on a later blog essay) and from the point of view of achieving the organization’s strategic and operational objectives.
The taxonomic methodologies that have been used are, job/work analysis and Job Evaluation Systems. The desire has been to use systematic methodologies in order to be able to develop and implement an understandable and equitable work/job/level structure. Various quantitative and qualitative methods have been available and are still available for use to perform job analysis and conduct job evaluations. For job analysis recently many quantitative techniques have been developed. With the advent of wide spread computer technology many of these quantitatively structured job analysis techniques are available in a computer-aided format. For job evaluation there are a plethora of techniques and methods available for use. They range from whole job ranking, paired comparisons, classification systems and point factor evaluation systems. With point factor evaluation systems being the apparently the most “objective” and quantified process (I for one doubt this contention).
To me, after years in this field, the effort expended to do all of the above in organizations is a complete waste. This is because of many practical reasons which one encounters in the “real world”.
Here are these reasons:
Job analysis and job evaluation systems assume a static organizational state. The organization sets its strategic and operational objectives and then follows work, job and job level analysis. But in reality now more than ever there is no “organizational steady state”. In order to succeed in the modern global competitive world, organizations have to be nibble, flexible and in a constant state of change. Thus static systems such as traditional job analysis and evaluation are not valid anymore. Tell a CEO that you want implement these systems with all their associated costs and you are sure find yourself on the street. Gone are the days of the “Hay System”.
The basic purpose of job evaluation systems is to create a hierarchy of work – positions, jobs, levels – based on some kind of an internal valuing system. In some job evaluation methods the valuing system is based on “compensable factors”. But, here lies the fallacy. Who decides what the appropriate “compensable factors” are for an organization? And those factors infinitely static, no matter how the organizational environment changes? Who sets this valuing system? HR, consultants, executives? And isn’t “beauty in the eye of the beholder”? Why would an employee, worker or even manager agree with some else’s concept of the value of the work they are doing? Over the years I have seen that this valuing process is a continuous creator of organizational angst. These processes destroy organizational trust and decreases employee morale. And when organizations are trying to achieve positive culture change these bureaucratic methods, which are a legacy of the “industrial age”, are often not appropriate for modern global work environments. There are no “colonial masters” anymore!
In theory compensation systems achieve “internal equity” through a properly developed job structure. This job structure is then melded with the external market to create a pay structure. This nomenclature of a pay structure is characterized as grades or salary grades. This nomenclature is also fallacious because, grades are developed by, clustering jobs and positions that have been determined (by a pseudo-expert) to be of equal internal value (by the use of a job evaluation methodology) and also are valued equally in the external market into one “box” called a grade. This is completely “much ado about nothing”. Again this exercise is quite subjective and as such lacks total credibility with the stakeholder public. The external benchmarking is achieved through the use of benchmark jobs. All this sounds complicated and it is. But the value deprived is very suspect. So I say, do away with grades. Grades are a “legacy system”.
Finally, did you note that I was using the expression “equal in value”. But what about “comparable value”. More on comparable value in a later blog.
Thus, in conclusion, in my opinion, if one desires some structure and discipline in a base pay process the only way one can achieve “equity” is through a valuing process that the “market” sets for work, jobs, positions and associated levels. There will be more on “market pricing” in a later blog.
