What Is Job Evaluation?
Job evaluation is the systematic process of determining the relative worth of jobs within an organization. It serves as the foundation for establishing internal pay equity and creating a rational compensation structure. Unlike performance appraisal, which assesses how well an individual performs a job, job evaluation focuses on the job itself, examining its duties, responsibilities, required skills, and working conditions.
For SHRM exam preparation, understanding the four primary job evaluation methods and their relative advantages and disadvantages is critical. Each method varies in complexity, objectivity, and suitability for different organizational contexts.
Non-Quantitative Methods
1. Ranking Method
The ranking method is the simplest and oldest approach to job evaluation. Evaluators compare jobs as whole units and arrange them in order from highest to lowest value based on an overall assessment of their worth to the organization.
- Advantages: Simple to understand and implement, inexpensive, works well for small organizations with few jobs
- Disadvantages: Highly subjective, does not measure the degree of difference between jobs, becomes unwieldy with large numbers of positions, difficult to defend legally
- Variations: Paired comparison (comparing each job to every other job) and alternation ranking (selecting the highest and lowest jobs alternately)
2. Classification (Grading) Method
The classification method establishes predetermined grade levels with written descriptions, then slots each job into the appropriate grade. The federal government's General Schedule (GS) system is the most well-known example of this approach.
- Advantages: Easy to understand, accommodates a wide variety of jobs, provides clear grade descriptions that aid communication
- Disadvantages: Grade descriptions may be too general to distinguish between jobs accurately, complex jobs may fit into multiple grades, can be difficult to write precise grade definitions
Quantitative Methods
3. Point-Factor Method
The point-factor method is the most widely used job evaluation approach. It identifies compensable factors (such as skill, effort, responsibility, and working conditions), assigns points to varying degrees of each factor, and sums the total points to determine each job's relative worth.
- Advantages: Highly objective and systematic, produces quantifiable results that are easy to defend, allows for fine distinctions between jobs, can be customized to reflect organizational values
- Disadvantages: Time-consuming and expensive to develop, requires significant expertise, can become rigid if not regularly updated, compensable factors may not capture all aspects of job value
4. Factor Comparison Method
The factor comparison method combines elements of ranking and point-factor approaches. It selects benchmark jobs, assigns monetary values to compensable factors for those jobs, and then compares other jobs factor by factor against the benchmarks.
- Advantages: Directly ties job evaluation to market rates, provides both ranking and monetary value, relatively precise
- Disadvantages: Complex and difficult to explain to employees, labor-intensive to develop, benchmark job rates can become outdated, rarely used in its pure form today
Choosing the Right Method
The best job evaluation method depends on several organizational factors. Small organizations with fewer than 50 positions may find the ranking or classification method sufficient. Larger organizations with complex job families typically benefit from the point-factor method. Organizations that want to closely align internal values with market rates may consider the factor comparison approach or a hybrid system.
Key Considerations
- Organization size and complexity
- Available resources (time, budget, expertise)
- Need for legal defensibility
- Union or employee relations considerations
- Desire for market alignment versus internal consistency
Modern Trends in Job Evaluation
Many organizations now use commercially available point-factor systems such as the Hay Group method, which evaluates jobs on know-how, problem solving, and accountability. Others are adopting market-pricing approaches that emphasize external competitiveness over internal equity. Some organizations use hybrid methods that combine job evaluation with market data to achieve both internal and external alignment.
SHRM Exam Tips
On the SHRM exam, expect questions that test your ability to identify the most appropriate job evaluation method for a given scenario. Be prepared to distinguish between quantitative and non-quantitative methods, explain the compensable factors used in point-factor systems, and recognize the practical limitations of each approach.