From job evaluation to salary scales – the basics

One of my readers Naim asked me about how job grading and salary scales / salary ranges are linked so I will cover the steps leading to the design of the salary structure in an organisation.

“Banding” or “job grading”  is done in order to enable comparison of roles across departments and functions within and outside the organisation.

Basically each job is described and assessed using the same criteria. The criteria vary depending on the approach you use, but usually revolve around a combination of factors such as the education and experience required, size of the team and budget managed etc as well as more descriptive factors such as the influence of the role or its impact on the organisation, the complexity or scope of the required decision-making etc.

One of the most important points to remember is that the job is evaluated, not the job holder. So whoever holds the role does not (should not) influence the result of the job evaluation.

In the end, a number of points or a category is assigned to each job. This is called job evaluation. In the GCC, the main methodologies used are those of the big consultancies, led by Hay, Mercer (called IPE) and Towers Watson – but there are other methods and you could even design your own grading approach, based on criteria that are specific to your organisation.

Banding, or grading, or ranges, is when you group all jobs that you consider to be of similar “value”, for example all jobs with points 100 to 115 are grouped together in band A.

This grouping is useful for internal comparisons in your organisation, making sure that if you are analysing jobs across units, these associations are based on relevant information. So you are ensuring that the jobs in R&D are not “over-graded” compared to those of Marketing for example.

The grouping can also be useful when you want to create the range of acceptable salaries within your company. You will have the results of the job evaluation and a job description which allows you to participate to a compensation survey so that you can compare how much you pay with respect to the market.

You can use the Hay or another evaluation methodology and participate in surveys from as many providers as you wish. Most of the large providers have “correspondance tables” between their own points/grades and the other large providers. This allows them and their clients to not be bound to only one source of compensation information, and ensures that some specialist providers can thrive. For example, McLagan are specialised in providing compensation data and services catered exclusively to the financial services community around the world. Birches Group provide compensation services for emerging countries and have their own unique methodology which allows comparisions in difficult to reach markets.

You can then compile this information and create what you consider to be the acceptable range of salary for these jobs with relative similar “weight”.

There is no common methodology that is used by the majority of companies in the world to create salary ranges. If you participate in only one survey and it has the kind of companies in it that you want to compare to, and you are using their job evaluation methodology, it is very easy to take the value they provide for market compensation at each grade, and use that for founding your salary ranges. What you gain in terms of ease of use though, you lose in terms of customisation and uniqueness of your organisation. Many companies in the Middle East use that approach as compensation practices are not always very sophisticated yet in the region – and so they may end up with the same salary ranges. Maybe one day I will write a post on different approaches to the creation of salary ranges.

The step of creating salary scales is not mandatory. For example in start-ups or small companies with a lot of individual, unique jobs, you may want to stop at the step of participating to the survey and getting the results. Then you will use the results independently and individually for each job. This is called market pricing. In that case, you don’t need to create salary ranges or bands because you don’t have many employees and your structure is very flexible.

Now tell me, which job evaluation approach do you use and how do you go about creating the salary ranges in your organisation ? What are the pros and cons ?

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