Difference between job evaluation and market pricing approaches in setting pay ranges and the strengths and drawbacks of each approach
One of the most common approaches used in determining employee payment within the private sector entails establishing pay ranges (Cushway, 2011, p. 78). According to Mathis and Jackson (2011, p.383), human resource managers should set pay ranges in accordance with the established pay grades. There are various approaches that human resource managers can incorporate in setting pay ranges. Some of the approaches used in setting pay ranges include job evaluation and market pricing. The two approaches differ with regard to the method used in determining the worth of a job.
Job evaluation approach involves determining the value of job depending on the job content. This means that job evaluation approach entails using internal data. In this approach, an organization’s human resource manager designs an internal hierarchy of all jobs and sets the pay ranges. According to Jensen, McMullen and Stark ( 2007, p.90), job evaluation takes into consideration a number of factors which include the responsibility, working conditions, effort and skills required to perform a job
There are various job evaluation pay systems that a firm can use in setting pay ranges. These include job ranking, job grading, point method and factor comparison. These methods have their benefits and drawbacks. For example, through job grading, a firm is able to deal with internal equity issues. However, this job evaluation approach is limited in that classification of jobs using different grades is subjective. Additionally, the method mainly relies on job titles when setting the pay (Erasmus, Swanepoel, Westhuizen, Schenk & Wessels, 2005, p. 358).
On the other hand, market pricing approach or market-based pay entails using labor market data to determine the worth of a particular job. Therefore, this approach involves using external data. In order to use this approach, a firm must identify the relevant labor market which can either be local, regional, national or international. The next step entails obtaining the relevant market pay.
Market pricing approach is considered to be an effective and competitive approach of determining pay levels. The benefit of market pricing approach arises from the fact that it emphasizes on a firm’s external competitiveness. Another benefit of the market pricing approach is that it is not too complicated.
However, the approach suffers from a number of drawbacks. One of the drawbacks of this approach is that it is not possible to access reliable market data. Therefore, the approach is only applicable if a firm can access market data related to a number of jobs within a particular job family. In addition, market-based pay or market pricing approach assumes that all jobs within a particular job title in different firms are identical.
The approach also assumes that the pay difference that exists within a particular organization reflects internal equity issues. In addition, the approach cannot be used when determining the pay for some jobs which are unique. For example, it a particular job is unique to a certain organization, it is not possible to get another job to compare it with. This means that it is not possible to access market pay data.
Reasons why organizations such as JCPenney are determining pay using job accountabilities and results and not effort and tenure
As a result of a comprehensive analysis of the benefits and drawbacks associated with evaluation and market-based pay systems, most organization are considering integrating job content-based marketing pricing approach in determining pay. There are a number of reasons that are pushing organizations to adopt pays determined by job accountabilities and results and not by effort and tenure. This approach is effective in that it integrates the best elements of job evaluation and market based pay systems.
The approach also enables a firm to reflect the actual value of jobs within the firm. JCPenny which operates within the retail industry adopted job content-based market-pricing approach in order to ensure effective valuation of jobs. Through this approach, organizations are able to ensure that internal promotions are based on job content and not results and longevity of tenure.
By integrating this approach, organizations are able to access more accurate market data. This arises from the fact that a thorough analysis of the job contents and job designs affect the market value of a particular job is conducted.
Jensen, McMullen and Stark (2007, p.95) are of the opinion that this approach enables organization management teams to develop a comprehensive understanding of the job description and the criteria used in determining the value of a particular job. The resultant effect is that organization management teams understand why some jobs are categorized as being big and others small.
The approach also provides organizations with a consistent and repeatable methodology that can be used when obtaining market data with regard to non-benchmark roles. As a result of these reasons, most organizations such as JCPenney are considering shifting their pay system from one based on effort and tenure to the new approach that is based on results and job accountabilities (Jensen, McMullen & Stark, 2005, p. 95).
Formulate your research-based recommendations about whether or not the job evaluation approach is outdated
A considerable number of firms in different economies have been using job evaluation approach in determining the worth of their jobs. Currently, most organizations consider this approach as a job-sizing tool (Beale, n.d, p.1). For example, through the point-based method, it is possible for a firm’s human resource manager to determine the worth of various job categories in the organization.
Job evaluation approach was widely being used by firms within the public sector to determine the value of their jobs. However, firms within the private sector are increasingly integrating the approach in their human resource management strategies. This is a clear indication that the approach is not outdated (Cushway, 2011, p. 78).
Additionally, the approach is increasingly being considered as an important tool in defending equal pay claims within the private and public sector (Armstrong, Cummins, Hastings & Wood, 2005, p. 61).
As a result of the versatile characteristic of the job evaluation approach, organizations in different economic sectors can use it in a number of ways. For example, human resource managers can use the approach to make changes to job contents and to implement organizational and technological changes.
Considering the fact that job evaluation approach is based on internal data, a firm’s management team can use job evaluation approach to compare its pay with those in the external market. The approach can also enable human resource managers to harmonize the employees pay and working condition with their pay spine. Other ways in which organizations can use job evaluation approach entails developing fair and equal pay systems and establishing effective grading structures.
According to Beale (n.d, p. 3), there is a new trend that is emerging whereby job evaluation is increasingly being linked with other human resource management processes such as performance management and recruitment. This indicates that job evaluation is firmly entrenched in human resource practices. The approach is also being used by individuals in developing their career paths.
To ensure effective integration of changes within an organization’s job content, human resource managers should consider the employees response. This arises from the fact that failure to involve the employees when implementing changes may result into employee resistance. In order to avoid this, it is paramount for HR managers to integrate effective job evaluation. This will aid in the determination of effective remuneration to be given to the employees. The remuneration should be in line with the changes in the job content undertaken.
From the above analysis, it is evident that job evaluation approach is not outdated. As one of the human resource management approaches used in determining the value of a particular job, job evaluation is increasingly being utilized as a support mechanism to different human resource management practices.
Despite the fact that the approach can be bureaucratic depending on the type of human resource system being used, the approach has proved to be very effective. This is evidenced by the high rate at which it is being utilized by private and public organizations in different economic sectors. Therefore, there is a high probability of increment in the relevance of job evaluation in the future (Beale, n.d, p. 3).
Reference List
Armstrong, M., Cummins, A., Hasting, S., & Wood, W. (2005). Job evaluation: A guide to achieving equal pay. London: Kogan Page.
Beale, S. (n.d). Job evaluation: Outdated bureaucracy or modern HR support mechanism? Web.
Cushway, B. (2011). The employers handbook 2011-12. An essential to employment law. London: Kogan Page.
Erasmus, B., et al. (2005). South African human resource management for public sector. Johannesburg: Juta and Company.
Jensen, D., McMullen, T., & Stark, M. (2007). The managers guide to rewards: What you need to know to get the best for and from your employees. New York: American Management Association.
Mathis, R., & Jackson, J. (2011). Human resource management. Mason: Thomson.