How do you determine what to pay?

Once you have defined your organization's compensation philosophy it is time to decide what to pay your employees for their work. To create a consistent and fair approach, employers can take the following steps:

  1. Conduct job analyses
  2. Create accurate job descriptions
  3. Perform job evaluations
  4. Review market data
  5. Create salary ranges

Job Analysis

Job analysis is the systematic study of jobs to determine the activities and responsibilities they include; their relative importance in comparison with other jobs within the organization; the qualifications that are required to complete the job; and the work conditions. The job analysis process provides valuable information that can be used to develop accurate job descriptions.

Job analysis focuses on the job, not the employee doing the job. One of the most effective techniques for job analysis is through a questionnaire with the current job holder. Please refer to the Job Analysis section on HR Intervals for more information.

Job Descriptions

Accurate and updated job descriptions provide the essential information for comparing an organization's positions internally and externally. Please refer to the Job Description section on HR Intervals for more information.

Job Evaluation

Job evaluation is the process of comparing a job against other jobs within the organization to assess their relative worth and to determine appropriate pay.

Job evaluation is a means to ensure internal and external equity within your organization.

Internal Equity External Equity
Fair compensation regarding how different positions within the organization relate to each other. Fairness in compensation between roles in your organization and similar roles in other organizations (i.e. the external labour market.)

 

Job evaluation should be performed for every new position to ensure the organization is hiring the correct level based on the job’s expected tasks, qualifications, and responsibilities. Job evaluations should also be conducted when a job has changed substantially to reflect the current role, known as reclassification or re-evaluation.

The four primary methods of job evaluations used to set compensation levels are: job ranking, point factor, factor comparison, job classification, and factor comparison.

Method Description
Job Ranking Job ranking places jobs in a hierarchy of their value to the company.
Point Factor Point factor breaks down jobs into compensable factors identified during a job analysis. Points are assigned to the factors, and a pay structure is established for the position.
Job Classification Job classification is when similar positions are grouped together into job classes based on predefined class specifications.
Factor Comparison A combination of the ranking and point methods. Benchmark positions are identified and ranked based on compensable factors. The factors are assigned monetary values based on market rates.

 

Click here for a job evaluation template using the point factor method.

Job evaluation process

Regardless of the approach or method used for job evaluation, the process should be clearly established and designed to ensure transparency and objectivity.

The job evaluation process should include the following steps:

1. Identify who conducts the job evaluation
Job evaluators will be integral to a successful job evaluation process. Many organizations will create a job evaluation committee that consists of senior employees who understand the functions of most of the jobs in the organization and are well-versed in job evaluation methods.

Organizations may decide to use an external firm to conduct job evaluations on behalf of the organization. With an external firm conducting the job evaluation, there is less bias and may increase fairness in the process — but this is an expensive option that may be beyond the funds of many nonprofit sector organizations.

2. Ensure job descriptions are up-to-date
Job evaluation needs to be based on current, up-to-date job descriptions. Before you begin the job evaluation, it's key to have sufficient time to write and update all the job descriptions for every role in the organization.

3. Identify, collect, and provide the relevant documents to be used in the evaluation process
In addition to job descriptions, other documents you can include are organizational charts, benchmarks, or comparable job descriptions.

4. Conduct training on the evaluation tool
If your organization is performing job evaluation internally, it is critical that all evaluators are appropriately trained on the job evaluation system or approach used by your organization.

5. Determine what to do if you find discrepancies
If job evaluation finds that jobs are being paid too much or too little, you may choose to increase salaries to the minimum of the range, freeze salaries (i.e. “red circle”), or limit base salary increases to cost of living increases; however you cannot decrease salaries. Decreasing salaries can constitute constructive dismissal.

6. Develop an employee appeal process
An employee may decide to appeal the results of their job evaluation. You should set up a process and be clear that it's possible for the evaluation to be higher, lower, or remain the same as the initial evaluation. Many organizations will have a re-evaluation request form and appeal meeting as part of the employee appeal process. The appeal process should be confidential and binding.

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