THE UNIVERSITY OF ZAMBIA

GRADUATE SCHOOL OF BUSINESS

HRM 2320/3310

SUPPLEMENTARY LECTURE NOTES

JOB EVALUATION NOTES

JOB EVALUATION

As you may know, job evaluation is a systematic process for defining the relative worth
or size of jobs within an organization in order to establish internal relativities.

Job evaluation is a systematic and formal process for defining the relative worth or size
of jobs within an organization in order to establish internal relativities. It is carried out
through either an analytical or a non-analytical scheme.

The Primary factor in determining compensation is an evaluation of work performed.

The internal worth of a job is evaluated based upon factor like - Know-How,
Problem Solving, and Accountability, Education, Experience, Complexity involved
in the job, Scope of job, Supervision received and, Authority Exercised.

Objectives of Job Evaluation

When we talk about the objectives of job evaluation, they include the following:

 Establish a standard procedure for determining the relative worth of each job
in an organization;
 Ensure equitable wage for a job and reasonable wage differentials between
different jobs in a hierarchical organization;
 Determine the rate of pay for each job which is fair and equitable with relation to
other jobs in the plant, community or industry;
 Eliminate wage inequalities;
 Use as a basis for fixing incentives and different bonus plans;
 Promote a fair and accurate consideration of all employees for advancement
and transfer;
 Provide information for work organization, employees‟ selection, placement,
training and other similar purposes;
 Provide a benchmark for making career planning for the employees in the
organization and;
 Ensure that like wages are paid to all qualified employees for like work.

Approaches to Job Evaluation

Approaches to establishing the worth of jobs fall broadly into two categories: formal and
informal.

Formal Job Evaluation

Formal approaches use standardized methods to evaluate jobs that can be analytical or
non-analytical. Such schemes deal with internal relativities and the associated process of
establishing and defining job grades or levels in an organization.
An alternative approach is ‘extreme market pricing’ in which formal pay structures and
individual rates of pay are entirely based on systematically collected and analysed
information on market rates and no use is made of job evaluation to establish internal
relativities. Extreme market pricing should be distinguished from the process of
collecting and analysing market rate data used to establish external relativities, having
already determined internal relativities through formal job evaluation.

Informal Job Evaluation

Informal approaches price jobs either on the basis of assumptions about internal and
external relativities or simply by reference to going or market rates when recruiting
people, unsupported by any systematic analysis. There are, however, degrees of
informality. A semi-formal approach might require some firm evidence to support a
market pricing decision and the use of role profiles to provide greater accuracy to the
matching process.

Principles of Job Evaluation

According to Kress, these principles are:

 Rate the job and not the job holder. Each element should be rated on the basis of
what the job itself requires;
 The scheme should be transparent; everyone concerned should know how it
works – the basis upon which the evaluations are produced;
 Appropriate proportions of women, those from ethnic minorities and people with
disabilities should be involved in the process of developing and applying job
evaluation;
 The quality of role analysis should be monitored to ensure that analyses produce
accurate and relevant information that will inform the job evaluation process and
will not be biased.
 Consistency checks should be built into operating procedures;
 The outcomes of evaluations should be examined to ensure that sex or any other
form of bias has not occurred;
 Particular care is necessary to ensure that the outcomes of job evaluation do not
simply replicate the existing hierarchy – it is to be expected that a job evaluation
exercise will challenge present relativities;
 Supervisors should participate in the rating of jobs in their own Departments.
Maximum co-operation can be obtained from employees when they themselves
have an opportunity to discuss job ratings and;
 Too many occupational wages should not be established. It would be unwise to
adopt an occupational wage for each total of point values.
Job Evaluation Factors
In the preceding sections, we have looked at the objectives, approaches and principles of
job evaluation. We will now discuss the job evaluation system, which comprises the
following factors:

 Know-How – The knowledge, skill and experience required for

standard acceptable performance. It considers the requirement for technical and
professional skills, expertise and experience, the amount of planning and
organising required and the requirement to work with and through others. The
three dimensions of Know-How are listed below:

a) Technical Know-How: Measures levels ranging from learning basics work

to specialized techniques and knowledge to professional mastery of scientific
theory.
b) Managerial Know- How: Measures the job’s requirements to integrate
diversified types of supervisory or managerial activities.
c) Human relation Know-How: Measures the degree to which the job requires
practical person to-person skills in persuasion, motivation, and selection of
people.

 Problem-Solving – the thinking required for analysing, evaluating, creating,

reasoning, arriving at and drawing conclusions; the extent to which
this thinking is covered by precedents or circumscribed by standards; and the
degree of creativity or original thought required.

 Accountability – The degree to which the employee is held accountable for taking
action and for the consequences of that action. It is the measured effect of the job
on end results. The freedom to act measured through the existence or absence of
constraints by managers, committees and procedures and the impact of that action
on the organization. The three dimensions of accountability are as follows:

a) Freedom to act - Measures the relative degree to which decisions can be made,
the level of authority which is needed, or the precedents, policies, and
procedures which must be considered before an employee can take action.
b) Magnitude - It is the degree of influence a position has on the
organizational operations.
c) Impact - It is the degree to which the job affects the organizational
operations. Some jobs are directly responsible for actions while others provide
counsel and advice, which is used by others to take action.

 Education - The level of formal education required to perform the functions required
of a position. There is often an overlap between education and experience, and
f or this reason, it is often advisable to consider the education level that would
be expected of a new incumbent recruited externally.
  Experience - The length of practical experience and nature of technical/managerial
familiarity required. This experience is in addition to formal education.

 Complexity – measured in terms of:

(a) The time taken to learn and adjust to specific job requirements.
(b) The level to which the job functions are defined and follow established and
predictable patterns.
(c) The thinking challenge required to adapt to rapidly changing circumstances
and innovative or conceptual thinking needed to initiate new corporate
direction.

 Scope of Job - The complexity and scope of work factors tend to be related
to the education and experience level required of a position. The calculation
of points for each of these factors is based on the application of a percentage
rating of the sum of the points derived in the evaluation of Education and
Experience.

 Supervision Received -The extent of supervision, direction or guidance imposed on

the job holder and the freedom the executive has to take action.

 Authority Exercised - Authority level expressed in terms of routine expenditure,

capital expenditure and investments, granting of loans, hiring and firing staff, etc.

Job Evaluation Process

As you may know, job Evaluation is a technique to rank jobs in an organization on

the basis of the duties and responsibilities assigned to the job. The job evaluation
process results in a job being assigned to a pay grade. The pay grade is associated
with a pay range that is defined by a minimum and a maximum pay rate. The
following are the steps in job evaluation:

a) Step One -Job Description - The position supervisor assigns duties and writes
the job description. If there is an incumbent employee s/he reviews it, and they
both sign it. Instructions and additional assistance are available from Human
Resources, if needed. The job description is a snapshot of the job as it presently
exists, reflecting the current duties and responsibilities of the job and/or the
incumbent.

b) Step Two – Approval - The Head of Department reviews job descriptions

and, if s/he concurs, approves the responsibilities, requirements, and depart-
mental organization contained within a job description presented for new
 evaluation, and signs it. If the Head of Department does not concur with the
contents of the description, it is returned to the supervisor for changes.

c) Step Three – Review- The Human Resource Department reviews the job
description as submitted with the supervisor prior to evaluation by the Job
Evaluation Committee.

d) Step Four – Evaluation - The Job Evaluation Committee (JEC) is a

multimember committee, the members of which are supposed to be drawn
from all the Departments, representing employees throughout the organization.
JEC ensures equity among jobs through the use of established, consistent
criteria for evaluation and prevents escalation of the job evaluation grades
by validating changes in job content presented for review. Members of JEC
receive in-depth training on job evaluation and utilize a consistently applied
point system for the evaluations.

e) Step Five – Confirmation - For most organisations, the Board of Directors or

its Committees approve all job evaluations and titles recommended by JEC.

Techniques of Job Evaluation

We will now discuss the job evaluation techniques, which include analytical and non-
analytical techniques as follows:

Non-Analytical Methods

(a) Ranking Method of Job Evaluation

This is simplest form of job evaluation method. The method involves ranking each job
relative to all other jobs, usually based on some overall factor like job difficulty. Each
job as a whole is compared with other and this comparison of jobs goes on until all the
jobs have been evaluated and ranked. All jobs are ranked in the order of their importance
from the simplest to the hardest or from the highest to the lowest. The importance of
order of job is judged in terms of duties, responsibilities and demands on the job holder.

The following steps are involved in ranking jobs:

 Obtain job information - The first step is job analysis. Job descriptions for each
job are prepared and these are the basis on which the rankings are made. The job
ranking method usually ranks jobs according to the whole job ‘rather than a
number of compensable factors.

 Select raters and jobs to be rated - Ranking all the jobs, at a time, is
usually not possible. The more usual procedure involves ranking jobs by
 department or in clusters i.e. factory workers, clerical workers and so on. This
eliminates the need for having to compare directly, say, factory jobs and clerical
jobs.

 Select Compensable factors – In the ranking method, it is common to use

just one factor, for instance job difficulty, and to rank jobs on the basis of
the whole job. Regardless of the number of factors you choose, it is advisable
to carefully explain the definition of the factor(s) to the valuators so that they
evaluate the jobs consistently.

 Rank jobs - Next, the jobs are ranked. The simplest way to do this involves giving
each rater a set of index cards, each of which contains a brief descript of a job.
These cards are then ranked from lowest to highest.

 Combine Rating - It is usually to have several raters rank the jobs

independently. Finally, divide all the ranked jobs into appropriate groups or
classifications by considering the common features of jobs such as similar
duties, skills, or knowledge required. All the jobs within a particular group
or classification receive the same wage or range of raters. Then, once this is
accomplished, the rating committee can simply average the ranking.

The advantages of the ranking method include: it is the simplest method; it is quite
economical to put it into effect; and it is less time consuming and involves little paper
work, while the disadvantages include: there are no definite standards of
judgement; there is no way of measuring the differences between jobs; and it
suffers from its sheer unmanageability when there are a large number of jobs.

(b) Job Classification or Grading Method:

In the ranking system there is no pre-determined yardstick of values. In the job grading
approach there is one such yardstick constituting of job classes or grades. Jobs are
measured as whole jobs. Under this method job grades or classes are established
by an authorised body or committee appointed for this purpose. A job grade is defined
as a group of different jobs of similar difficulty or requiring similar skills to
perform them. Job grades are determined on the basis of information derived from job
analysis. The usual procedure is to choose compensable factors and then develop class
or grade descriptions that describe each class in terms of amount or level of
compensable factor(s) in jobs. Such factors are:

a) Difficulty and variety of work,

b) Supervision received and exercised,
c) Judgement exercised,
d) Originality required,
 e) Nature and purpose of interpersonal work relationships,
f) Responsibility,
g) Experience and,
h) Knowledge required

The advantages of the job classification method include: it is easy to understand and
simple to operate; it is economical and, therefore, suitable for small organizations; the
grouping of jobs into classifications makes pay determination problems easy to
administer; and it is useful for Government jobs, while the disadvantages include: the
method suffers from personal bias of the committee members; it cannot deal with
complex jobs which will not fit neatly into one grade; it is rarely used in industries; it is
difficult to know how much of a job rank is influenced by the man on the job; and the
system is rather rigid and unsuitable for a large organizations or for very varied work.

Analytical Methods of Job Evaluation

Quantitative methods divide jobs into component parts and require absolute or relative
value judgements about how much of a component part a particular job requires. The two
most popular types of quantitative systems are the point rating and factor comparison
methods.

(a) Paired Comparison Ranking

Paired comparison ranking is a statistical technique used to provide a more sophisticated

method of whole-job ranking. It is based on the assumption that it is always easier to
compare one job with another than to consider a number of jobs and attempt to build up
a rank order by multiple comparisons.

The technique requires the comparison of each job as a whole, separately, with every
other job. If a job is considered to be of a higher value than the one with which it is being
compared it receives two points; if it is thought to be equally important, it receives one
point; if it is regarded as less important, no points are awarded. The scores are added for
each job and a rank order is obtained.

Paired comparisons can be done factor by factor and in this case can be classified as
analytical. A simplified example of a paired comparison ranking is shown in figure 6
below.
 Figure 6: A paired comparison
a b c d e f Ranking
Job Total
reference score

A – 0 1 0 1 0 2 5=
B 2 – 2 2 2 0 8 2
C 1 0 – 1 1 0 3 4
D 2 0 1 – 2 0 5 3
E 1 0 1 0 – 0 2 5=
F 2 2 2 2 2 – 10 1

Source: Adapted from Armstrong, M and Cummins, A (2008) Valuing Roles, Kogan Page, London

The advantage of paired comparison ranking over normal ranking is that it is easier to
compare one job with another rather than having to make multiple comparisons. But it
cannot overcome the fundamental objections to any form of whole-job ranking; that no
defined standards for judging relative worth are provided and it is not an acceptable
method of assessing equal value or comparable worth. There is also a limit to the number
of jobs that can be compared using this method; to evaluate 50 jobs requires 1,225
comparisons. Paired comparisons are occasionally used analytically to compare jobs on
a factor by factor basis. In addition, the paired comparison has the following advantages:
it is more objective method of job evaluation; the method is flexible as there is no upper
limit on the rating; it is fairly easy method to explain to employees; the use of limited
number of factors (usually five) ensures less chances of overlapping and over-
weighting of factors; and it facilitates determining the relative worth of different jobs. On
the other hand, the disadvantages include: it is expensive and time consuming method;
using the same five factors for evaluating jobs may not always be appropriate
because jobs differ across and within organization; and it is difficult to understand and
operate.

We will now discuss the mechanism for evaluating jobs under this method, which
involves the following steps.
 Determine the compensable factors – Analysts must first decide which factors are
common and important in a broad range of jobs. The critical factors like
responsibility, skill, mental efforts, physical effort and working conditions are most
commonly used. Some organizations use different factors for managerial,
professional, sales, and other types of jobs.
 Determine key jobs – Key jobs are those that are commonly found throughout
the organization and are common in the employer’s market. Common jobs are
selected because it is easier to discover the market rate for them. Ideally, these
benchmark jobs should be accepted by employee as key jobs and should encompass
a wide variety of critical factors to be evaluated. Typically, 10-25 key jobs are
selected by the committee.

 Allocation of present wages for key jobs – The job evaluation committee then
allocates a part of each key job’s current wage rate to each critical factor. The
proportion wage assigned to each of the different compensable factors depends on
the importance of the factor. The base rate agreed upon by the company.

 Place key jobs on a factor comparison chart – Once the wage rates are assigned to the
compensable factors of each key job, this information is transferred to a factor
comparison chart. Key job titles are placed in the factor columns according to the
rate of wages assigned to the job for each critical factor.

 Evaluate other jobs – The titles of key jobs in each column of the factor comparison
chart serve as benchmarks; other non-key jobs are then evaluated by fitting them
in the rate scale under each factor column.

(b) Point-Factor Rating Method:

Point-factor schemes are the most common forms of analytical job evaluation. They were
used by 70 percent of the respondents to the e-reward 2007 job evaluation survey who
had job evaluation schemes. The basic methodology is to break down jobs into factors.
These are the elements in a job such as the level of responsibility, knowledge and skill
or decision making that represent the demands made by the job on job holders. For job
evaluation purposes, it is assumed that each of the factors will contribute to the value of
the job and is an aspect of all the jobs to be evaluated but to different degrees.

Each factor is divided into a hierarchy of levels. Definitions of these levels are produced
to provide guidance on deciding the degree to which the factor applies in the job to be
evaluated. Evaluators consult the role profile or job description, which should ideally
analyse the role in terms of the scheme’s factors. They then refer to the level definitions
for each factor and decide which one best fits the job.

A maximum point’s score is allocated to each factor. The scores available may vary
between different factors in accordance with beliefs about their relative significance. This
is termed ‘explicit weighting’. If the number of levels varies between factors this means
that they are implicitly weighted because the range of scores available will be greater in
the factors with more levels.
The complete scheme consists of the factor and level definitions and the scoring system
(the total score available for each factor and distributed to the factor levels). This
comprises the ‘factor plan’.

Jobs are ‘scored’ (i.e. allocated points) under each factor heading on the basis of the level
of the factor in the job. This is done by comparing the features of the job with regard to
that factor with the factor level definitions to find out which definition provides the best
fit. The separate factor scores are then added together to give a total score that indicates
the relative value of each job and can be used to place the jobs in rank order. Figure 7
below explains factor plan. In this example, the evaluations are asterisked and the total
score would be 400 points.

Figure 7: factor plan

Levels and
Factors
scores

1 2 3 4 5 6

Expertise 20 40 60* 80 100 120

Decisions 20 40 60 80* 100 120
Autonomy 20 40 60 80* 100 120
Responsibility 20 40 60 80* 100 120
Interpersonal skills 20 40 60 80 100* 120

Source: Adapted from Armstrong, M and Cummins, A (2008) Valuing Roles, Kogan Page, London

A point-factor scheme can be operated manually – a ‘paper’ scheme – or computers can

be used to aid the evaluation process.

The Design and Implementation Programme of a Point-Factor Job Evaluation

Scheme

The design and implementation of a point-factor job evaluation scheme can be a time-
consuming affair. In a large organization it can take two years or more to complete a
project. Even in a small organization it can take several months. Many organizations seek
outside help from management consultants or ACAS in conducting the programme.

We will now discuss the steps involved in the design and implementation programme of
a point-factor job evaluation scheme.
Step 1. Decide to develop scheme: The decision to develop a new point-factor job
evaluation scheme follows an analysis of the existing arrangements, if any, for job
evaluation, and a diagnosis of any problems.

Step 2. Prepare detailed project programme: There is need to prepare a detailed

project programme before embarking on this exercise.

Step 3. Select, brief and train design team: The composition of the design team should
have been determined broadly at Step 1. Members are usually nominated by management
and the staff or union(s) (if they exist). It is very desirable to have a representative number
of women and men and the major ethnic groups employed in the organization. It is also
necessary to appoint a facilitator.

Step 4. Formulate communication strategy: It is essential to have a communication

strategy. The introduction of a new job evaluation will always create expectations. Some
people think that they will inevitably benefit from pay increases; others believe that they
are sure to lose money. It has to be explained carefully, and repeatedly, that no one should
expect to get more and that no one will lose. The strategy should include a preliminary
communication setting out what is proposed and why and how people will be affected.
Progress reports should be made at milestones throughout the programme, for example
when the factor plan has been devised. A final communication should describe the new
grade and pay structure and spell out exactly what is to happen to people when the
structure is introduced.

Step 5. Identify and define factors: Job evaluation factors are the characteristics or key
elements of jobs that are used to analyse and evaluate jobs in an analytical job evaluation
scheme. The factors must be capable of identifying relevant and important differences
between jobs that will support the creation of a rank order of jobs to be covered by the
scheme. They should apply equally well to different types of work including specialists
and generalists, lower level and higher level jobs, and not be biased in favour of one sex
or group. Although many of the job evaluation factors used across organizations capture
similar job elements (this is an area where there are some enduring truths), the task of
identifying and agreeing factors can be challenging. The e-reward survey (2007)
established that the 10 most frequently used factors in tailor-made analytical schemes, in
rank order, were as follows:

1. Knowledge and skills.

2. Responsibility.
3. Problem solving.
4. Decision making.
5. People management.
6. Relationships/contacts.
7. Working conditions.
8. Mental effort.
9. Impact.
10. Creativity.

Step 6. Define factor levels to produce the basic factor plan: The factor plan is the key
job evaluation document. It guides evaluators on making decisions about the levels. The
basic factor plan defines the levels within each of the selected factors. A decision has to
be made on the number of levels (often five, six or seven), which has to reflect the range
of responsibilities and demands in the jobs covered by the scheme.

Step 7. Select and analyse test jobs: A small representative sample of jobs should be
identified to test the scheme. A typical proportion would be about 10 per cent of the jobs
to be covered. These are then analysed in terms of the factors.

Step 8. Test basic factor plan: The factors forming the basic factor plan are tested by
the design team on a representative sample of jobs. The aim of this initial test is to check
on the extent to which the factors are appropriate, cover all aspects of the jobs to be
evaluated, are non-discriminatory, avoid double counting and are not compressed unduly.
A check is also made on level definitions to ensure that they are worded clearly,
graduated properly and cover the whole range of demands applicable to the jobs to be
evaluated so that they enable consistent evaluations to be made.

Step 9. Develop scoring model: The aim is to design a point-factor scheme that will
operate fairly and consistently to produce a rank order of jobs, based on the total points
score for each job. Each level in the factor plan has to be allocated a points value so that
there is a scoring progression from the lowest to the highest level.

Step 10. Decide on the factor weighting: Weighting is the process of attaching more
importance to some factors. Explicit weighting takes place in a point-factor scheme when
the maximum points available for what are regarded as more important factors are
increased. Implicit weighting takes place when some factors have more levels than others
but the same scoring progression per level exists as in the other factors.

Step 11. Prepare full factor plan: The outcome of Steps 9 and 10 is the full scored and
weighted factor plan, which is tested in Step 12.

Step 12. Test the full factor plan: The full factor plan incorporating a scoring scheme
and either explicit or implicit weighting is tested on the same jobs used in the initial test
of the draft factors. Further jobs may be added to extend the range of the test.

Step 13. Computerize: The steps set out above will produce a paper-based scheme and
this is still the most popular approach. The e-reward survey (2003) found that only 28
per cent of respondents with job evaluation schemes used computers to aid evaluation.
But full computerization can offer many advantages including greater consistency, speed
and the elimination of much of the paper work. There is also the possibility of using
computers to help manage and support the process without using computers as a
substitute for grading design teams.

Computer-aided schemes use the software provided by suppliers but the system itself is
derived from the paper-based scheme devised by the methods set out above. No job
evaluation design team is required to conduct evaluations but it is necessary to set up a
review panel that can validate and agree the outcomes of the computerized process. No
one likes to feel that a decision about their grade has been made by a computer on its
own and hard lessons have been learnt by organizations that have ended up with fully
automated but discriminatory systems.
Step 14. Test the computerized scheme: The computerized scheme is tested to ensure
that it delivers an acceptable rank order.

Step 15. Apply and implement: When the final design of the paper or computerized
scheme has been tested and shown as satisfactory, the application and implementation
programme can begin. This involves the evaluation of a representative sample of
benchmark jobs followed by the evaluation of the remaining jobs.

Designing an analytical matching job evaluation scheme: The sequence of actions

required to design an analytical matching scheme is shown in the figure below. These
may follow the development of a point-factor scheme, the factors in which would be used
in the matching process.
Identify and define
Matching factors

Define benchmark
Define level profiles
Role profiles

Develop matching Test matching

procedure Procedure

Prepare individual role

profiles for matching

Train matching panel

Conduct matching

Figure 9 Analytical matching job evaluation scheme design sequence

Source: Adapted from Armstrong, M and Cummins, A (2008) Valuing Roles, Kogan Page,
London

Market Pricing

Market pricing is the process of obtaining information on market rates (market rate
analysis) to inform decisions on pay structures and individual rates of pay. It is called
‘extreme market pricing’ when market rates are the sole means of deciding on internal
rates of pay and relativities and conventional job evaluation is not used. An organization
that adopts this method is said to be ‘market driven’. This approach has been widely
adopted in the United States. It is associated with a belief that ‘The market rules, OK’,
disillusionment with what was regarded as bureaucratic job evaluation, and the
enthusiasm for broad-banded pay structures (structures with a limited number of grades
or bands). It is a method which often has appeal at board level because of the focus on
the need to compete in the marketplace for talent.

Market rate analysis as distinct from extreme market pricing may be associated with
formal job evaluation. The latter establishes internal relativities and the grade structure,
and market pricing is used to develop the pay structure – the pay ranges attached to
grades. Information on market rates may lead to the introduction of market supplements
for individual jobs or the creation of separate pay structures (market groups) to cater for
particular market rate pressures.

The acceptability of either form of market pricing is dependent on the availability of

robust market data, and when looking at external rates, the quality of the job-to-job
matching process, in other words comparing like with like. It can therefore vary from
analysis of data by job titles to detailed matched analysis collected through bespoke
surveys focused on real market equivalence. Extreme market pricing can provide
guidance on internal relativities even if these are market driven. But it can lead to pay
discrimination against women where the market has traditionally been discriminatory.

Grade and Pay Structure

Grade and pay structures provide a logically designed 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. Grade and pay structures also enable organizations to
communicate the career and pay opportunities available to employees.

Grade Structure
A grade structure consists of a sequence or hierarchy of grades, bands or levels into
which groups of jobs that are broadly comparable in size are placed. There may be a
single structure that contains grades or bands and which is defined by their number and
width (width is the scope the grade or band provides for pay progression). Alternatively
the structure may be divided into a number of job or career 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.

Pay structure
A pay structure defines 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. It
provides scope for pay progression in accordance with performance, competence,
contribution or service.

There may be a single pay structure covering the whole organization or there may be one
structure for staff and another for manual workers, but this is becoming less common.
There has in recent years been a trend towards ‘harmonizing’ terms and conditions
between different groups of staff as part of a move towards ‘single statuse. Executive
directors are sometimes treated separately where reward policy for them is decided by a
remuneration committee of non-executive directors.
A grade structure becomes a pay structure when pay ranges, brackets or scales are
attached to each grade, band or level. In some broad-banded structures, reference points
and pay zones may be placed within the bands and these define the range of pay for jobs
allocated to each band.

Guiding Principles for Grade and Pay Structures

Grade and pay structures should:

 be appropriate to the culture, characteristics and needs of the organization and

its employees;
 facilitate the management of relativities and the achievement of equity, fairness,
consistency and transparency in managing grading and pay;
 be capable of adapting to pressures arising from market rate changes and skill
shortages;
 facilitate operational flexibility and continuous development;
 provide scope as required for rewarding performance, contribution and increases
in skill and competence;
 clarify reward, lateral development and career opportunities;
 be constructed logically and clearly so that the basis upon which they operate
can readily be communicated to employees;
 enable the organization to exercise control over the implementation of pay
policies and budgets.

Types of Grade and Pay Structure

The types of pay structures as described below are multi-graded, broad-graded, broad-
banded and job family.

(a) Multi-Graded Structure

A multi-graded structure (sometimes called a narrow-graded structure) consists of a

sequence of job grades into which jobs of broadly equivalent value are placed. There
may be 10 or more grades and long-established structures, especially in the public sector,
may have as many as 18 or even more grades. Grades may be defined by a bracket of
job evaluation points so that any job for which the job evaluation score falls within the
points bracket for a grade would be allocated to that grade. Alternatively, grades may be
defined by grade definitions or profiles that provide the information required to match
jobs set out under job demand factor headings (analytical matching). This information
can be supplemented by reference to benchmark jobs that have been already graded as
part of the structure design exercise.
The problem with multi-graded structures is that they encourage ‘grade drift’, i.e.
unjustified upgrading. This takes place because it is difficult to differentiate between
successive grades even with the help of job evaluation.

Figure 10: A multi-graded structure

Source: Adapted from Armstrong, M and Brown, D (2001) Pay: The New Dimensions, Kogan Page,
London

The features of a multi-grade structure include the sequence of job grades of 10 or more;
narrow pay ranges of between 20–40%; and progression is usually linked to performance.
In terms of advantages, it clearly indicates pay relativities; facilitates control; and it is
easy to understand, while its disadvantages include hierarchical rigidity; prone to grade
drift; and inappropriate in a de-layered organisation. The multi-grade is more appropriate
in a large bureaucratic organization with well-defined hierarchies; when close and rigid
control is required; and when some but not too much scope for pay progression related
to performance or contribution is wanted.

(b) Broad-Graded Structures

Broad-graded structures have six to nine grades rather than the 10 or more grades
contained in multi-graded structures. They may include ‘reference points’ or ‘market
anchors’ that indicate the rate of pay for a fully competent performer in the grade and
are aligned to market rates in accordance with ‘market stance’ policy. The grades and
pay ranges are defined and managed in the same way as multi-graded structures (i.e.
mid-point management) except that the increased width of the grades means that
organizations sometimes introduce mechanisms to control progression in the grade so
that staff do not inevitably reach its upper pay limit.

The mechanisms available consist of:

 Reference point control: scope is provided for progression according to competence

by increments to the reference point. Thereafter, individuals may earn cash bonuses
 for high achievement that may be consolidated up to the maximum pay for the grade
if high achievement levels are sustained.

 Threshold control: a point is defined in the pay range beyond which pay cannot
increase unless individuals achieve a defined level of competence and achievement.

 Segment or zone control: an extension of threshold control that involves dividing the
grade into a number, often three, segments or zones.

Broad-graded structures are used to overcome or at least alleviate the grade drift problem
endemic in multi-graded structures. If the grades are defined, it is easier to differentiate
them, and matching (comparing role profiles with grade definitions or profiles to find
the best fit) becomes more accurate. But it may be difficult to control progression and
this would increase the costs of operating them, although these costs could be offset by
better control of grade drift.

K
£

Figure 11: A board-graded structure

Source: Adapted from Armstrong, M and Brown, D (2001) Pay: The New Dimensions, Kogan Page,
London

The features of a broad-graded structure include a sequence of between 6 and 9 grades;

fairly broad pay ranges, e.g. 40–50%; and progression linked to contribution and may be
controlled by thresholds or zones. The advantages of a broad-graded structure are as
follows: the broader grades can be defined more clearly; and better control can be
exercised over grade drift, while the disadvantages include: too much scope for pay
progression; control mechanisms can be provided but they can be difficult to manage;
and may be costly. The broad-graded structure is more appropriate when desirable to
define and differentiate grades more accurately as an aid to better precision when grading
jobs; grade drift problems exist; and more scope wanted to reward contribution.

(c) Broad-Banded Structures

Broad-banded structures compress multi-graded structures into four or five ‘bands’. The
process of developing broad-banded structures is called ‘broad banding’. In its original
version, a broad-banded structure contained no more than five bands, each with,
typically, a span of 70 to 100 per cent. Bands were unstructured and pay was managed
much more flexibly than in a conventional graded structure (no limits may be defined
for progression that depended on competence and the assumption of wider role
responsibilities) and much more attention was paid to market rates, which governed what
were in effect the spot rates for jobs within bands. Analytical job evaluation was often
felt to be unnecessary because of the ease with which jobs could be allocated to one of a
small number of bands.

Figure 12: Narrow- and broad-banded structures

Source: Adapted from Armstrong, M and Brown, D (2001) Pay: The New Dimensions, Kogan Page,
London

The difference between this original concept of broad bands and broad grades is that the
latter still generally adopt a fairly conventional approach to pay management by the use
of analytical job evaluation, mid-point management and compa-ratio analysis
techniques. Structures with six or seven grades are sometimes described as broad-banded
even when their characteristics are typical of broad grades.

However, structure often crept in to broad bands. It started with reference points aligned
to market rates around which similar roles could be clustered. These were then extended
into zones for individual jobs or groups of jobs, which placed limits on pay progression.
Job evaluation was increasingly used to define the boundaries of the band and to size
jobs as a basis for deciding where reference points should be placed in conjunction with
market pricing. The original concept of broad-banding was therefore eroded as more
structure was introduced and job evaluation became more prominent to define the
structure and meet equal pay requirements. Zones within broad bands began to look
rather like conventional grades.
 Band B Zone B3

Zone B2 x

Zone B1 x
K x
£
Band A Zone A3

Zone A2 x

x
Zone A1
x

(x = reference point)
Figure 13: A broad-banded structure with zones
Source: Adapted from Armstrong, M and Brown, D (2001) Pay: The New Dimensions, Kogan Page,
London

The features of a broad-banded structure include a series of, often, 5 or 6 ‘broad’ bands;
wide pay bands of typically between 50% and 80%; and progression linked to
contribution and competence. The advantages of a broad-banded structure are that it is
more flexible; rewards lateral development and growth in competence; and fits new style
organizations, while the disadvantages includes the creation of unrealistic expectations
of scope for pay rises; seems to restrict scope for promotion; difficult to understand; and
it is associated with equal pay problems. A broad-banded structure is more appropriate
in de-layered, process-based, and flexible organizations; where more flexibility in pay
determination is wanted; and where the focus is on continuous improvement and lateral
development.

Job Families

Job families consist of jobs in a function or occupation such as marketing, operations,

finance, IT, HR, administration or support services that are related through the activities
carried out and the basic knowledge and skills required, but in which the levels of
responsibility, knowledge, skill or competence levels required differ. In a job family
structure, different job families are identified and the successive levels in each family
are defined by reference to the key activities carried out and the knowledge, skills or
competences required to perform them effectively. They therefore define career paths;
what people have to know and be able to do to advance their career within a family and
to develop career opportunities in other families. Typically, job families have between
six and eight levels as in broad-graded structures. Some families may have more levels
than others.
In contrast to career family structures each family in a job family structure may in effect
have its own pay structure that takes account of different levels of market rates between
families (this is sometimes called a ‘market group’). The level or grade structures may
also differ between families to reflect any special family role characteristics. Because
the size of jobs and rates of pay can vary between the same levels in different job
families, there may be no read-across between them unless use is made of analytical job
evaluation.

K
£

Operations Finance IT
Figure 14: A job family structure
Source: Adapted from Armstrong, M and Brown, D (2001) Pay: The New Dimensions, Kogan Page,
London
Factors Affecting Compensation

Factors determining compensation of an employee considerable amount of guess word

and negotiation are involved. But the following are the certain factors which have been
extracted as having an important bearing upon the final decision:

a) Demand and Supply: Demand for and supply of labour and its availability will
have great influence on the determination of wage rates. If there is a shortage of
labour, the wages demanded will be high. If, on the other hand labour is plentiful,
workers will be too willing to work at low rates of wages. However, wages cannot
be regarded today merely a price for services rendered. In recent years therefore,
both management and labour has been becoming less and less dependent on this
factor as a basic factor. An employee will not hesitate to accept lower wages if he
has opportunities for growth in the organization. Today, the money which is paid
as compensation should enable a worker to buy goods and services which will
enable him and his family to live a better and fuller life and satisfy his hierarchical
needs.

b) Organization’s Ability to Pay: This is a major affecting factor in determining

wage and salary structure of an organization. Financial position and soundness
of an organization can put it in a position to offer attractive compensation
package. Some of the reputed economically sound organizations are offering
good compensation package and thereby successful in obtaining and
maintaining talented workforce. Good compensation package helps in attracting
and retaining quality talent in an organization. Generally wages in most of the
organization decide through collective bargaining and, organization’s ability
and capacity to pay attractive wages depends upon over all financial soundness
and economic condition of an organization.

c) Prevailing Market Rate or “Going Wage Rate”: This is practically the major
factor that induces any organization to take it as a base while determining wage
and salary structure for it. Prevailing market rate is also known as ‘most
comparable rate of wage’, and most popular method for wage rate
determination, especially for lower cadre positions. There are many reasons for
an organization to pay wages at a market rate like competition and a practice of
‘Brain Drain’ prevails in the market. Furthermore certain laws framed laid down
principal of’ minimum wages’, ‘equal wage for equal work’. In addition to this
trade unions are also prefer to bargain upon and in accordance with market rate
of wages.
d) Productivity: Productivity is measured in terms of output per man hour. It a
result of several factors such as technology, labour efforts, method of doing
work, management contribution and support and so on. However, productivity
has always remained as base for wage differences since it a base which is
apparently justifiable and acceptable to all in the organization. Many a time this
as base is not acceptable to many trade unions as it is very difficult to have
accurate measurement and is has always remain at a discretion of management
policies.

e) Cost of Living: It is always expected that there has to be adjustment in pay rates
in accordance with prevailing cost of living. The changes in the cost of leaving
affect purchasing power of the person. Trade union also considers this as a base
for collective bargaining on wage issues.

f) Trade Union’s Bargaining Power: Generally the mechanism for fixing of

wages for majority of workers is collective bargaining or negotiation, and
collective bargaining and negotiations depends upon the trade union’s strength.
If there is a strong union operates in the organization, it may dictate its terms on
wage fixation and revision over a period of time and vice versa. The strength
and power of the trade union depends upon its membership, financial strength
and leadership it may have, for its functioning.

g) Job Requirements: From the organizational perspective appropriate job

analysis and job evaluation exercise is a base for the wage determination and
revision. It is quite obvious also that wages to be paid to the workers should be
in accordance with the duties, responsibilities and the job performance. Wage
or compensation package vary in accordance with job description and job
specification.

h) Management Attitude: Attitude of employer or management towers the

working community of the organization does influence in wage determination
and revision at an appropriate time. Some reputed and professional organization
does prefer to pay wage in accordance with their reputation or prestige of an
organization in the market. They may give participation to workers in sharing
profits. On the other hand conservative organizations do not prefer to go for such
profit sharing.

i) Psychological and Social Factors: Psychologically person perceive wages and

compensation package as sole parameter for success or failure in the life.
Compensation package plays significant role in the employees pride, moral,
motivation and psychological engagement and involvement in the work.
 Therefore such variable should not be overlooked by the organization while
determining wage and salary structure. Socially and ethically also people feels
that “equal work should carry equal pay “i.e. wage should be in accordance with
efforts and workers should not be felt like being cheated. Compensation policy
should not make any discrimination on the basis of caste, colour, Sex or region,
and must try to satisfy condition for fairness equity and justice.

j) Legislative Considerations: Legislative provisions do provide protection to the

working community by fixing bottom line for wage payments. Many a time it
was found that the bargaining power of the workers was not strong enough to
ensure fair wages. Consequently, the state legislative frame work stepped in to
regulate wages and provide for certain benefits to the workers.
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