The company’s pay structure should reflect the HR Department’s strategy, as it ought to incorporate the company’s organizational mission, culture and business model. Thus, a flat pay structure with few pay bands may reflect a rather flexible and customer-oriented organization, while a hierarchical pay structure with many overlapping pay bands would rather be characteristic of a pyramidal organization, in which career advancement is mainly obtained through access to promotions.
The "point method" job evaluation approach provides the framework for a quantification of each job’s relative importance for the company (internal job value); this quantification will then provide the basis for the calculation of a theoretical salary range. One of the advantages of this method is that it allows mitigating the importance given to job titles and promotions. It thus fits well into a "flat" structure, as it allows highlighting the job holder's level of skills and responsibilities, independent of the corresponding hierarchical level.
The point method is based on one or several questionnaires that contain an evaluation scale for each of the considered compensation factors. These factors, their definitions and possible answers, may be adapted in order to stick as closely as possible to the reality of the company in which the process takes place.
Phase 1: First of all, we must identify the job evaluation criteria (sample job evaluation model) that correspond to the company's areas of activity - the attached document shows Pro Mind Consulting's standard ProJob™ Eval model. Such criteria must be carefully selected, as they will be applied to all the positions that are included in the evaluation process. Such criteria, called "compensation factors", will allow evaluating each job’s value.
Phase 2: We must then attribute weightings (sample weighting table) to these compensation factors, reflecting their relative importance for the company. The choice of these weightings is made by the HR Department and represents a strategic decision.
In order to better understand this, let's first consider a logistics company; it will certainly grant more importance – and hence attribute more points – to the criteria that belong to the "Processes" axis in our job evaluation model (illustration). Now, let's consider a financial institution; to the difference of the logistics company, it will probably put more weight on the "Finance" axis, due to its stronger financial management-orientation.
Phase 3: Now, let's analyze each of the company's areas of activity, in order to determine how many possible answers each compensation factor should offer (sample job evaluation questionnaire); the labels of the different answers will also have to be adjusted to the company's vocabulary and processes.
Please note that the ratio of each answer's value to the total of points available has to be the same for each compensation factor. Moreover, these ratios are usually identical for all users and are generated by the editor of the software.
Phase 4: Appointed evaluators study each job's detailed specifications (or "job description") and attribute the corresponding points to the compensation factors. Each job’s point value will be determined by calculating the weighted average of the points obtained for the different compensation factors (i.e. by using the weights introduced at step 2).
In our example, the evaluator has selected the 1st answer for the "Design and development of solutions" factor, which brings 135 x 2.5% = 3 points to the corresponding position. Similarly, if the evaluator chooses the 1st answer for the "Financial management" factor, this will bring 135 x 10% = 14 points to the corresponding position. As a reminder, the weightings 2.5% and 10% are the same as those of weighting table (illustration) that was introduced at Phase 2.
Phase 5: All jobs must now be sorted out hierarchically according to their point value. The resulting table will have to go through a 2-step internal validation process. First, the evaluation of each department's jobs will have to be accepted by the corresponding Heads of Departments. Second, the Board of Directors will have to accept the final hierarchy of the company's job values. Obviously, two types of objections may arise at this stage:
Phase 6: Once all objections have been lifted, the Chief HR Officer will be able to set up a pay structure based on the final hierarchy of the company’s jobs according to their point values. Each position will be included into a pay band (sample pay structure) according to the interval in which its point value lies.
Finally, the comparison of the company's salaries with the wages paid to the holders of similar positions on the labor market will allow identifying the jobs that are either over- or under-paid in comparison to market standards (i.e. salary benchmarks).
Here is a sample comparison table (illustration) that allows comparing the company’s pay structure with the value of the corresponding positions on the job market. Such data ("salary benchmarks") may for example be gathered from compensation surveys.
Also, the following graph shows the distribution of the organization's salaries vs. their point values (illustration) - i.e. the relative importance of each job within the organization. The aim of this chart is to make sure that salaries increase approximately in proportion to each job's point value. When this is the case, the shape of the graph will be close to a line.
Moreover, if relevant market data is available, it will be possible to draw the distribution of the organization's salaries vs. their value on the job market (illustration) - i.e. compare the pay structure of the organization to that of its competitors. This approach is of interest as it allows checking whether your wages are competitive on the job market.
In this example, we observe that two points land completely off the mark. In this case, the Chief HR Officer will have to closely examine these two jobs and investigate the cause(s) of their misevaluation. Every time some jobs turn out to be clearly over- or undervalued as compared to the benchmark, some corrective action has to be taken. Once all the necessary corrections have been made, the brand new pay structure is ready for implementation!