Unlike market pricing which determines the pay scale of a job on external sources, job evaluation defines compensation based on a job’s appraised internal value. There is less of an emphasis on title-to-title comparison and more emphasis on comparing jobs by skill, responsibility, and effort. The benefit of job evaluation is that because a number or grade is given to each job, a consistent language is determined and a hierarchy is established. Consider the value of a sales job compared to an accountant, although the market might assign different pay grades to each job, you might feel that each are of equal value. Job evaluation is not only helpful when linking a job to compensation but can also be helpful in career development, job-person fit assessment, succession planning, and organizational analysis.
Because people are more fluid in their careers, rarely staying at one company for 20 years or more like they did in the past, many companies are switching to market pricing to set compensation. Market pricing determines the value of a job based on what other companies pay employees with a similar job. Survey data is collected, analyzed and matched to each job to determine the rate paid. Although companies strive to provide employees with a fair and competitive wage, one must consider the market because the market often sets the rate. This method is beneficial to organizations in a highly competitive business environment like high tech or scientific companies, but for most companies, a combination of the two approaches will be the most valuable.
A Combined Approach
After seeing what each approach brings to the table it seems more apparent that the best approach is a combined approach. It is important to understand both the internal value and external value of a job. The market pricing approach allows you to remain competitive while job evaluation allows you to determine the value of a job based on your company alone. We make decisions based on price every day, how much we are willing to pay for a car, a pair of shoes, or dinner. But our decision to buy is based on our needs and the value we derive from it, not just the market average. When determining the value of a particular job, you do need to keep in mind a job’s market value but because each organization values jobs differently, it is important to also conduct internal evaluations.
We'd like to know, how you are setting your compensation levels? Job Evaluation? Market Pricing? Both? Or Something Else?
Jensen, D., McMullen, T., & Stark, M. (2007). The Manager's Guide To Rewards: What You Need To Know To Get The Best For-And From-Your Employees (pp. 90-94). New York: Hay Group. Retrieved May 25, 2012
Market Pricing versus Job Evaluation.Why Not Both?. (2011). In BLR. Retrieved May 25, 2012