job evaluation techniques

JOB EVALUATION
A recent survey indicated that over 70% people change jobs for the reason of better salary, which means that biggest sore point with employees is their compensation package.

Challenge that faces any company and its HR people is how much should they pay for each of the jobs. The simplest logic that strikes the mind is “On the basis of its importance to the company”. How do the functions of that particular position affect the goals of that organisation? Job evaluation tries to establish that. It is the process of analyzing and assessing various jobs systematically to ascertain their relative worth in an organization. Job Evaluation involves determination of relative worth of each job for the purpose of establishing wage and salary differentials. Job Evaluation helps to determine wages and salary grades for all jobs.

Jobs are evaluated on the basis of content and placed in order of importance. This establishes Job Hierarchies, which becomes the basis for satisfactory wage differentials among various jobs.

But before we go any further, let us be clear on one thing. Job evaluation is not a panacea for pay package dissatisfaction problems. The fact of the matter is that in any issue involving humans, there is never an ultimate solution. The best of the solutions is only a workable solution. So, is the case in this case too.

Another important point to keep in mind is that Job Evaluation does not rate the employee but only the job. That is so say, it does not rate Mr Ram Bhagat, the dispatch clerk, but the job of Dispatch Clerk vis a vis other jobs of peon, lift operator, receptionist, telephone attendant and so on.

Relative worth is determined mainly on the basis of Job Description and Job Specification. Employees need to be compensated depending on the grades of jobs they perform. Remuneration must be based on the relative worth of each job. Ignoring this basic principle results in inequitable compensation and attendant ill effects on employees’ morale. A perception of inequity is a sure way of de-motivating an employee.

While there are a host of factors to be considered for job evaluation, following are key factors: -

(a) Mental skills/capabilities required
(b) Physical skills/capabilities required
(c) Demands on physical labour
(d) Responsibility to be shouldered
(e) Working Conditions

Besides above, there are a host of others factors like risk/hazard, physical personality demands, social skills, oral and written communication skills, voice skills, honesty, loyalty, reliability, morality, courage and so on.

Suppose BBC decides to do Job Evaluation for its television and radio anchors and News readers.

For a radio news reader correct pronunciation and rich & clear voice quality are the only criteria. But for television news readers, besides above, a presentable physical personality is an added qualification required. And for the programme anchors, quick wit and spontaneity is yet another qualification required over and above that of news readers. Thus, during job evaluation, grading would be in the following order - TV anchors, TV News Readers, Radio News Readers. But where do you place Radio Anchors, who ought to have better wit and spontaneity than TV News Reader but not the physical personality, whether ahead of TV News Readers or after them? Not an easy question to answer in theory but far easier in practice. TV, being a financially richer division of business, would command premium for its employees and therefore TV news reader would probably be rated above Radio anchor.

Let us now see how is the job evaluation is done in IT Sector

Level of Expertise Mental Physical Skill Set Physical Labour Responsibility Working Conditions
5 System Analyst Data Entry operator System Analyst Same for all
4 Data Entry Operator
3 Programmer Programmer Programmer
2 Programmer System Analyst
1 Data Entry Operator System Analyst Data Entry Operator

Positions: 1) System Analyst
2) Programmer
3) Data Entry Operator

METHODS OF JOB EVALUATION
1. Analytical Methods

(a) Point Ranking Methods: Different factors are selected for different jobs with accompanying differences in degrees and points.
(b) Factor Comparison Method: The important factors are selected which can be assumed to be common to all jobs. Each of these factors are then ranked with other jobs. The worth of the job is then taken by adding together all the point values.

2. Non-Analytical Methods

(a) Ranking Method: Jobs are ranked on the basis of their title or contents. Like Managers, Supervisors, Workers, Peon, etc. All managers whether from production, planning, sales, stores or Allied Services (House Keeping) Deptt are treated equal. Job is not broken down into factors etc. It is easier to implement but not always satisfactory for the employees.

(b) Job Grading Method: It is based on the job as a whole and the differentiation is made on the basis of job classes and grades. Like in a hotel, Receptionist’s job may be graded higher than back office billing clerk’s job. Similarly, a production/sales manager billet may be graded higher than Allied Services Manager’s. In this method it is important to form a grade description to cover discernible differences in skills, importance to company’s core operations, responsibilities and other characteristics.

PIT FALLS IN JOB EVALUATION
While “relative worth of each job for the organisation” appears to be fair basis for fixing salary differentials, is it really so? “Relative worth for the organisation” is the pay master’s perspective. Employee’s perspective is invariably different. He is looking for the best payer for his skill sets and time. A particular job which is a subsidiary job in company “A” could be primary job in company “B”. Going by the job evaluation logic, first company would pay its employees for the same job less than the second company. Now, why should an employee, who can get better salary in second company, work for the first company for less salary? If the company insists on paying less on the Relative worth logic, either it would not get the employees or would have high turnover of employees for the post. Unfortunately, a company is like a body system. Mind may be the most important part. But its performance is dependent on satisfactory performance of all other organs of the body. Less important it may be, you still need to man that position with a reasonably suitable person.

Salaries for various jobs are dependent on various other factors
EXTERNAL ENVIRONMENT

VARIOUS FACTORS INFLUENCING SALARIES
1. Job Related Factors

(a) Contribution
(b) Level in Hierarchy
(c) Relative Worth
(d) Responsibility
(e) Criticality
(f) Risk associated
(g) Hazard

2. Person Related

(a) Ability/Skill set
(b) Education
(c) Personality

3. Organisation Related

(a) Growth/prosperity
(b) Union Bargaining
(c) Technology
(d) Policies

But the bottom line of whole thing is that very few organisations world over really indulge in such kind of scientific study of jobs. Most companies flow with the market and pay at prevalent market rate for most of the jobs. Application of this scientific study is no guarantee for success nor the companies who did not follow this elaborate approach fail to be achievers worth the mention.

ROLE OF TRADE UNION MOVEMENT IN ESTABLISHING SALARIES
Trade unions have been apparently championing the cause of labour for decades. And many believe that they have revolutionised the service conditions in the industry as well as better wages. A little analysis will reveal that these champions of labour welfare have unwittingly done just the opposite though indirectly, unwittingly and even unknowingly. Today, if labour does not gets its due, it is due to country’s slow industrialisation and resultant economic backwardness. There is no denying the fact that licence/permit raj and unscrupulous industrialists, who endeavoured to keep this licence system in place, were the main culprits for slow industrialisation of the country. But, at the same time, trade union movement can not be absolved of their responsibility in scaring away prospective investors from Indian industrial landscape. Else, how do we explain demise of 100s of successfully running textile mills in Mumbai in 1980s when trade unions, under the inspired leadership(?) of Dr Datta Samant, ran riot which resulted in lock out in hundreds of mills? How do we explain the flight of capital from West Bengal which was the industrial capital of India in pre-independence era? And how do we explain the reluctance of industrialist to invest in Kerala, the most educated state in the country? Last year, during the mayhem of Honda Factory in Gurgaon, the factory administration had threatened to shut the plant and walk out of India. Who knows if Honda and any other Japanese companies, scared by the revival of trade union culture in India, have shelved their fresh/expansion investment plans? And if they have done so, who but trade unions should shoulder the responsibility?

At the end of the day, loss of each job creates an unfavourable demand supply situation for workers and therefore erodes their bargaining power of better compensation package and working conditions. If there was enough industrialisation of the country, favourable demand supply situation in the labour sector would have forced the industrialists to offer better wages and other incentives even without trade unions as is happening now in IT and some other sectors.

Today, in the industrialised cities of Delhi, Mumbai, Hyderabad and Bangalore, Chandigarh, Ludhiana, etc, most of the employees are more empowered to negotiate their pay package and working conditions than any time in the past.

Trade Unions, through their militant ways, work only for the miniscule number of workers who are in the organised sector. They work only for those who are their members. They created a private oasis for those lucky few who could fetch a job in organised sector. Unorganised labour suffered as a result. Even among the organised labour force, they mostly sheltered the crooked and the inefficient among the workers and only seldom earned any major reprieve for the general masses.

(Please note that above opinion is my personal opinion and therefore not necessarily correct. Diversity of opinions in this matter quite large. Therefore, I recommend each one to use his/her own judgment in this matter).

DETERMINATION OF WAGES & SALARY

What is the difference between Salary and Wages?
Wage is the remuneration paid to blue collar workers like factory workers. It could be time based (hourly rate of payment or daily wages) or output based. As against wages, Salary is the monthly remuneration paid to white collar workers like office staff. However, this difference is more customary figure of speech and less of any practical significance.

Wages and salary are fixed rates of monetary payments to employee in return for his/her contribution to the organisation. Generally they form the major part of most of the peoples’ total earnings. Salaries are subject to annual increment as a reward for having gained experience and become more valuable to organisation. They determine the standard and quality of living of the employees. On the other side, these are costs to the organisation and therefore affects manufacturing cost of the product and profitability of the organisation. Thus, salary and wages become the centre point of relation between employee and the organisation.

The salary or wages (hereinafter referred as salary only for simplicity sake) paid for each job is determined by the job evaluation. However, the salaries are not fixed for jobs as a single figure (say Rs 5,000) but as a band, say Rs 4,500 to 6,000. Salary for the next level of job starts with a base salary which is normally slightly less than higher limit of preceding grade of job.

The jobs are broad banded during the process of job evaluation. Job evaluation is a subjective exercise and not an objective and definitive process. Errors and biases in are inevitable in such assessment. Therefore, jobs within say 10% of baseline are clubbed together to form a single grade to avoid 100s of pay scales. As a matter of norm, most industries limit salary grades to ten. With advent of flatter hierarchies, many companies have broad-banded their salary structure even further and have compressed the salary grades to as low as four.

“COST OF LIVING” WAGES
Minimum Wage: Starting at the bottom of the pyramid of salary and wages is Minimum Wage. Minimum Wages are designed to provide for bare sustenance of a family of four and preservation of efficiency of worker. So, it takes care of bare necessities like Roti, Kapda aur Makaan for a family. Minimum requirements of person in terms of food, clothing and shelter have been defined. In addition there is 25% extra to cater for medical, entertainment, etc. Payment of minimum wages as declared by govt under the Minimum Wages Act, 1948 is legal obligation.

Fair Wages: Next stage in pay pyramid is Fair Wage. Fair Wage is more a matter of academic interest. Wage is fair if it is equal to the rate prevailing for a particular job in that geographical location. (You can not compare a barber’s rate in India with a barber’s rate in US).

Living Wage: Next level is Living Wage. It is yet another a term for academic interest with no clear standards. This is the level where in a worker can provide his family not only the bare necessities of life but also some frugal comforts.

WAGE RAISE.
This is one of the contentious issues which employers have to face year on year. Wage raise is often determined on the performance. It is a comparative recent phenomenon in India. (Earlier most people used to get a fixed raise year on year). However, most supervisors don’t want to distinguish between a good and a bad worker. They suffer from what we call central.Tendency.

Large majority of the employees are rated as average and only exceptionally good or bad employees get above and below average rating. They do it because they do not want to demoralise and antagonise under performing workers. However, large sections of good workers who have performed better and were expecting good raise feel antagonised and often quit to join other firms.
Another problem associated with reward is that continuous rewarding to few deserving employees is not possible since it leaves a feeling of favouritism and discrimination in the employees who fail to get it. And once you take this consideration into cognisance, the very purpose of merit based reward is defeated.

Wage raise combines two elements. One: it is meant to compensate the employee for the eroding purchasing power of his salary due to inflationary conditions, two: the experience and efficiency earned by the employee over the past one year needs to acknowledged and compensated. Higher experience and efficiency, if not adequately compensated by the company, would be exploited by the rival companies by luring away the competent employees with higher salaries. Many companies like Larsen & Toubro, TCS, etc face high attrition rate among the newly trained candidates because while they provide excellent training and increase the value of the trainee in the market, they fail to compensate the new employees at the post training enhanced market rate.

COMPONENTS OF COST TO THE COMPANY
1. Basic Pay
2. Dearness Allowance
3. Bonus
4. Allowances
Basic Pay – Basic Pay for each position is often fixed on the basis of salary surveys. Annual increments are given on the basic pay to compensate the worker for the additional experience he has gained and the resultant efficiency in performance.

Dearness Allowance – Fixation of Dearness Allowance is a much more complex process. It is revised on regular basis to compensate the worker for loss of purchasing power of money over the period due to erosion in the value of currency courtesy inflation. So, higher the inflation, higher the dearness allowance increases. Govt of India does it twice a year for Central Govt employees.

The cost data is monitored and collected by the Labour Bureau with its Head Quarters in Shimla and 22 branch offices in various parts of the country. A basket of items has been selected whose cost variation data is collated by them and that forms the basis for grant of next increase of Dearness Allowance.

This practice of Dearness Allowance started in 1939 when WW-II broke out and prices of all items started spiralling. The price of items in pre WW-II era was pegged as base of 100 and subsequently any increase in prices over this were compensated at the rate of 1.3 points for every 1 point rise over 100.

Bonus: Bonus started as a motivational tool for productivity increase. It was a voluntary profit sharing mechanism. It was an ex-gratia payment made by factory owner to his worker usually at the time of major festival of the region, Diwali in North India, Onam in South India and so on. Over the time, trade unions made it a bargaining tool and it became almost compulsory to pay bonus for every industry. Further, in 1964, trade unions were able to convince government to make it a statutory payment. The Act was passed in 1965 and payment of minimum 4% bonus became statutory obligation. This minimum ceiling was subsequently revised to 8.33%. The upper limit has been placed at 20%.

Allowances: In addition to above element of salary and wages, there are host of allowances depending upon the conditions of service. Some of them are monetary and some other non monetary. However, most of these are negotiable. Allowances like House Rent Allowance, Transport Allowance, Medical Allowance are some of the major monetary allowances. As a matter of fact most of the allowances were designed as a tax shelter for the employees. Now that govt has become wiser and begin to tax them either directly or in the name of fringe benefit tax, most of the industries have begun to wind up and merge many allowances in basic pay.

more information is available on the following links:
www.managers-net.com/job_evaluation

www.jenss.com/Job%20Evaluation.pdf

www.hr-guide.com/jobevaluation