Amongst the factors which need and deserve to be duly taken into account when making decisions about individual pay, an in-depth and thorough knowledge of the relevant labour market rates definitely plays a crucially significant role. The approach most widely recognised, and thus most extensively used, to investigate labour market rates is known as “market pricing.”
Although job evaluation and market pricing should not be considered as mutually exclusive, especially in the past, these have been habitually perceived as conflicting methodologies and used hence the one as a substitute for the other.
Market pricing has traditionally caught companies CEOs interests in that enabling businesses to better compete in the war for talent it well encapsulates the spirit of competition (Armstrong, 2006). Having an appropriate and thorough knowledge of market rates can in fact put a company in a position to design more attractive and competitive reward packages, which at least in the first instance might reveal to be rather effective to lure to the organization new talent from the external environment. The same attractive appeal cannot be indeed deemed typical of the job evaluation approach, which is rather widely considered as a boring and definitely less vibrant reward management tool.
The approach to salary determination dominating in the US in the 1990s, as basically opposed to job evaluation, was actually market pricing. The explanation of the reason for that could be basically condensed into the conviction that: “a job is worth what the market says it is worth.” Job evaluation, which in contrast is concerned with internal relativities, was hence deemed as a pointless exercise by employers, who essentially preferred to exclusively focus their attention on the external labour market rates. Yet, as desired by employers, market pricing was actually also enabling these to ease the development and introduction of pay systems based on a reduced number of salary bands and grades, the so-called “broad-banded” pay systems (Armstrong, 2006).
It could be contended that job evaluation and market pricing are both basically intended to enable employers to achieve the same unique objective, that is to say to identify the most effective, consistent and appropriate way to determine the pay level of their employees. To help organisation to achieve this objective, nonetheless, the two methods follow two different paths:
- Job evaluation, which is concerned with internal relativities and aims at assessing the size and importance of the different jobs performed within an organisation, essentially investigates the endogenous environment;
- Market pricing, which aims at investigating and letting gain an employer knowledge of the pay levels offered by the other employers operating in the same market for the same type of jobs which are the object of the investigation is concerned with the exploration of the exogenous environment.
Inasmuch as job evaluation has attracted over time a rather widespread criticism for being judgmental and, as such, not representing a scientific approach, market pricing has not escaped the same type of criticism. The outcome of a market pricing investigation in fact does not enable employers to scientifically identify a single, unique pay rate for each investigated role. On the contrary, even when taking into consideration a single type of job with reference to a single location, it does produce a number of different pay rates (CIPD, 2010).
The effectiveness and reliability of market pricing essentially sorely depends on the way jobs are matched. Mismatching jobs can indeed produce undesirable consequences: at best void of any meaning the exercise and at worst produce counterproductive effects in that the individuals in charge of carrying out the exercise might reach completely wrong conclusions, to the detriment of the achievement of the business intended objectives. Reportedly, inappropriate job matching is the major cause of inaccuracy, and even failure, in market data collection for market-pricing-related reasons.
More recently, external comparisons based on “job capsules”, rather than on job titles have revealed to be more reliable and accurate. In order to better match internal with external jobs these are designed maintaining the main focus on job responsibilities and challenges.
Job capsules can also reveal to be somewhat of effective to determine internal relativities. Whether designed and developed with accuracy and whether the information included for each capsule is wisely and craftily selected, these can be easily understood both internally and externally, contributing to making it more straightforward comparing the internal with the external roles.
As claimed by Armstrong (2006), also market pricing can help organisations to investigate and determine the internal relativities, even though the exercise would be in this case driven by the external market. Whether the internal investigated jobs are in fact accurately and appropriately matched with the external jobs, the findings of market pricing may actually reveal useful in order to determine internal relativities, too. In this instance, notwithstanding, mismatching the internal and external roles would account for this technique revealing even more unwieldy. Yet, employers deciding to have recourse to this type of approach should be aware that by doing it they exclusively and totally rely on the indications provided by the external environment, that is to say the external labour market. As internal relativities should also be established according to the different strategies pursued by an organisation, notwithstanding, it follows that it could hardly and eventually only by chance happen that the jobs grades defined by market pricing may actually appropriately reflect the organisation strategy. This risk could be mitigated by using only data gathered within exactly the same kind of organisations; nonetheless, it is very unlikely that the one-size-fits-all approach in such matters may reveal appropriate and may produce valuable effective results. Employers deciding to embrace this approach should duly consider and be well-aware of this aspect.
More recently, the most reliable source of data for the market pricing exercise has revealed to be the “specific market rate pay data”, according to which data is gathered by means of bespoke surveys conducted for well-pre-identified purposes and with reference to well-specified areas. This type of surveys is expected to produce more reliable and trustworthy data in comparison with that provided by wide-ranging surveys.
Once the external investigation has been completed, an accurate internal activity, the most important indeed, has to be carried out within the organisation. The data collected needs to be interpreted and decisions need hence to be made for each position in order to determine where, in relation to the market salary band identified, the organisation intends to position its own salaries level. It is clearly at this stage that the business reward strategy comes to play; decisions have obviously to be made in fact according to this.
The internal analysis has to be indeed carried out also taking extra care of the equal pay regulations introduced locally by the different governments. Whether the market at large should not pay attention to equal pay legislation, passively accepting the externally collected data could easily expose employers to the risk of breaching the local legislation.
As discussed earlier, job evaluation and market pricing are by no means mutually exclusive; they both aim at achieving the same objective, but following a different route. Used together they can really enable companies to design and develop strong and sound pay system structures.
Job evaluation basically enables employers to: assess the importance of each job within their
organisations, prevent jobs duplications and gaps and ultimately implement a salary structure compliant with equal pay legislation.
Market pricing on the other hand aiming at thoroughly and earnestly investigating the relevant labour market (local, national or international) essentially enables businesses to more effectually attract and retain individuals. The information collected enables firms to identify the most suitable salary bands for each type of job and consequently to decide in which point in the band they intend to position themselves.
The CIPD (2010), nonetheless, also acknowledges the existence of some “tensions” between the two approaches. The results emerged from job evaluation could in fact reveal to be in contrast with the findings of market pricing. The combination of the two techniques, however, has the scope to help employer to determine the importance of a role within an organisation and ensure that each job-holder receives a level of pay which is appropriate and adequate to the current market rates. The identification of any gaps is intended to eventually bridge the substantial differences emerged and enable employers to attract and retain employees. It is not ultimately a matter of tensions, but rather a matter of somewhat of a synergic approach generated by the combination of the two methodologies, by means of which the contribution of the one tool supports further the contribution made by the other.
As claimed by Armstrong (2006), market pricing is a very valuable tool enabling businesses to “reconcile the different messages provided by job evaluation and market rate surveys.” Whether the market rates for some roles should reveal to be higher than those identified as a result of the internal exercise, employers should opt to include a market supplement to those levels of pay in order to the company value proposition sound more appealing and dramatically increase the chances to attract and retain individuals.
In order to prevent and eventually overcome the risks habitually associated with equal pay claims, these additional salary quotes, that is to say the market supplements, should be supportable, objectively justified and corroborated by adequate evidence proving that these are actually offered by reason of the competitive rates offered by competitors in the relevant market(s) (Armstrong, 2006).
By reason of the employers need to be complaint with equal pay legislation, during the last decade the number of organizations having recourse to job evaluation in the UK has steadily increased. Findings of several studies reveal that not only the number of organizations using this methodology has indeed constantly grown, but also that this number is destined to grow further in the incoming years. In particular, research has revealed that job evaluation is also increasingly used by public sector employers, to wit: local authorities and the NHS. Reportedly on the other hand once organisations have adopted job evaluation just a very few of these decide to abandon the approach.
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