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.
The effectiveness of market pricing is clearly
strictly depending on the quantity, quality and reliability of the data
collected (Armstrong, 2006). External data can be gathered in a variety of ways:
participating in pay clubs, gaining access to specific surveys (safe in the
knowledge that the payment of a fee might be required to access reliable,
quality data), scrutinising the appointment section of newspapers and journals and
visiting the countless specialised websites.
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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