Market Pricing versus Job Evaluation
Which is better—job evaluation or market pricing? Though many see them as competing processes, a blend of the two offers more benefit because it balances the strengths and weaknesses of each.
Market pricing uses external sources, for example salary surveys, to determine the value of your jobs. Job evaluation provides a systemic approach that allows you to analyze and value the jobs within your own organization. It provides a common language for your positions within a job hierarchy. For example, you can compare a marketing manager with an accountant or a sales job. The common language that a job evaluation methodology gives you translates different jobs to a point factor number or grade. The jobs may be different, but their internal value can be the same.
It’s important to evaluate jobs both internally and externally because, even though many have the same value as defined by each method, it’s often the most important jobs or those that are the most difficult to recruit that are not equal across both methods. As a result, you can end up overpaying or underpaying when relying on only one process.
Though job descriptions cover most of the work done in an organization, they don’t always cover some jobs that can easily be found within salary surveys. Often jobs are a blend of several positions so it’s good to combine market pricing and job evaluation and use them consistently. Using both provides checks-and-balances that allow you to take advantage of the best, most up-to-date processes available and have a better understanding of the value of all your company’s jobs.
If you’re planning to develop or revamp your base pay system, you should be aware of the legalities that can affect compensation, including:
All employers engaged in the performance of federal contracts are required to pay “prevailing” wages. This ensures that nonunion employers cannot gain an unfair bidding advantage by paying wages far below the union rate and passing the savings on to the government in lower bids.
This Act applies to contractors and subcontractors performing on federally funded or assisted contracts with a value in excess of $2,000. The Act requires covered employers to pay their laborers and mechanics prevailing wages plus the value of prevailing employee benefits.
McNamara-O’Hara Service Contract Act
Applies to service contracts with U.S. government and District of Columbia agencies. The Act covers both white-collar and blue-collar workers but excludes administrative, professional, and executive employees who meet the exemption criteria. The Act does not apply to certain types of contracted services.
Requires employers that manufacture, fabricate, or assemble equipment for the federal government, and employers that sell such items, to pay the prevailing wage if the value of the contract is $10,000 or more. Although the Act refers to prevailing rates, it has historically been used to require payment of minimum wage rates, not union rates.
American Recovery and Reinvestment Act
Division A of The American Recovery and Reinvestment Act of 2009 (ARRA) appropriates substantial funding for construction, alteration, and repair of federal buildings and for infrastructure projects such as roads, bridges, public transit, water systems, and housing.
Equal Pay Act
Prohibits differences in pay that are based on gender. Employers covered by the EPA must ensure that male and female employees are paid equal wages for performing substantially equal jobs at the same location.
Covers employers with 15 or more employees and prohibits employment practices that discriminate on the basis of sex, race, color, religion, or national origin.
Whether you’re starting from scratch or revising an existing compensation program, it’s a good idea to begin with a discussion with the executive team about compensation philosophy. It sets the ground rules for compensation in your organization and, as a written record of your compensation plan, includes how all the various parts of compensation will be structured and implemented.
I hope you’ve found this series of article helpful. For more detailed information about compensation planning and administration, you might want to review Compensation 101: Introduction to Compensation and Benefits.