The importance of job grading
What is job grading?
Many organizations—particularly the larger ones—classify jobs into a?hierarchy of grades or bands. This is achieved through a systematic job evaluation process, which establishes the responsibilities, requirements, and other aspects of each position (note: it is always the role being evaluated in this process, not the person).
In this way, the value of a job within the business is?objectively?determined, forming the basis of a framework for a?fair and equal pay system.
However, it is not always necessary to evaluate and grade all jobs within an organization. In some cases, it might be more appropriate to select a?small sample of benchmark jobs?to construct a broad layout of company roles and then decide where other jobs fit into it.
Usually, a job grading structure defines a series of grades, or levels, each with an associated?pay range. However, some grades might have a wide pay range (perhaps to indicate a broad range of responsibilities within that grade), whereas others might have a narrow one.
An alternative approach is to use a pay structure that is?divided equally and incrementally?into grades—e.g., Grade A = $20k to $29k, Grade B = $30k to $39k, Grade C = $40k to $41k, and so on.
No matter what approach you adopt, the overall aim of a job grading system is to ensure that?positions of equal value are paid equally. The system should be?flexible, transparent, easy-to-use, and consistent, producing?objective?results by following a requirements-based approach.
Progression and regrading?
The ability to move up a pay grade is key to ensuring that employees remain motivated and engaged. This is achieved by having a clear and transparent system in place that shows employees?what they need to do to progress?within the organization and also?how they will be rewarded.
The potential for employees to advance in the company is often assessed incrementally on a?specific date each year. Alternatively, progression can be achieved when an?agreed upon level of performance or competence has been met.
However, the most appropriate means of progressing through pay grades will vary among businesses—for example, depending on the composition of the workforce and the size of the firm.
Sometimes, it is necessary to review and potentially?regrade?an existing role. This might occur when an employee requests it, perhaps because they think they are performing a very similar role to others in a higher pay grade.
4 Benefits of a job grading system?
There are four primary benefits to creating a fair and objective framework for determining employees’ pay grades :
1. Ensures equality?
As mentioned above, ensuring that equivalent jobs are rewarded equally is a key function of job grading. This system enables companies to comply with regulations that are in place to prevent discrimination (e.g., fair pay to men and women) and establish an equitable workplace.
2. Helps retain valued employees
Financial reward is not everyone’s primary motivation for working at an organization, but paying your employees?what they are worth is still one of the best ways to ensure they stay with you.
3. Attracts new talent
A pay structure that is unequal or out of step with the wider job market will make it very hard to attract the best candidates to your business. Conversely, having an equitable and consistent job grading system in place makes working at your organization a wise and advantageous choice for top recruits.
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4. Financial certainty
A formalized and transparent pay structure makes it easier to set budgets and manage ongoing payroll costs.
For example, with a system in place, you can more readily predict the likely increase in payroll costs at the start of the year if a typical number of employees progress up a grade because the pay ranges are predefined.
How to develop a job grading system?
There are?several different methodologies?available to systematically grade jobs, such as?slotting, whole job ranking, factor comparison, point-factor rating, and external pricing.
Nevertheless, it is routine to?evaluate?the responsibilities and duties of a job and assign each aspect a?rating; those individual ratings are then calibrated to determine an?overall grade?for the job. The jobs are subsequently placed in?rank order, which forms the basis for the grading structure.
The first stage of establishing a job grading system is to obtain full and detailed?job descriptions or specifications?of the positions in your company. This allows you to then evaluate and rate the individual elements of each role.
The specific?job evaluation factors?that are assessed will vary among organizations, but it is common to use the following five aspects to measure a job’s breadth:
Next, each of these factors is assigned a?rating or level?(e.g., “trainee,” “intermediate,” “expert”). Descriptions of the expected skills and competencies at each level of these rankings provide guidance so that the ratings are evaluated objectively using?predefined standards.
The ratings are then?weighted?in order to ascribe more significance to factors that are considered most important, before then being combined to produce an overall job grade.
Finally, the grading structure and pay ranges are established based on?up-to-date and accurate data regarding current market pay rates. For instance, you can review salary surveys or speak to recruitment/sector experts to determine appropriate salaries for each grade.
Impacts of poor job grading?
In the past, some job grading systems were set up to?value?management roles and duties?more than positions that required specific expertise in the subject matter. Additionally, some job grading systems are?unnecessarily complicated, which leads to?inconsistencies?and?a lack of transparency.
However, modern job grading and evaluation systems that rely on technology rather than human decision-making can nullify both of these criticisms.
Inaccurately evaluating job grades and pay ranges leads to?employee?dissatisfaction, which increases employee turnover and reduces productivity. Additionally, it can?waste money. For example, if a job is graded higher than it really merits, it means an inflated salary is being paid—this is also bad for employee morale.
Signs of poor job grading include:
Most–if not all–job grading systems are open to?a degree of error, largely because most jobs encompass intangible aspects that are hard to quantify. However,?peer review?and?panel assessment?both address this issue as?group decision-making is often more objective?based on the fact that it eliminates, or at least dilutes, individual bias.
Furthermore, the?continual review and reevaluation of your organization’s pay framework?ensures that it remains up-to-date and minimizes the impact of errors and inconsistencies, especially as jobs inevitably evolve over time.
To avoid these pitfalls, you need to?properly train HR staff?to accurately evaluate and compare job roles is vital, as well as?eliminate as much personal bias?from the process as possible.
Eliminating managerial discretion?
Establishing a clear and transparent job grading system allows?objective decision-making around pay and progression?in a business. It is a difficult undertaking as (often intangible) elements of a job can be hard to evaluate and make it difficult to compare positions.
Nevertheless, this process is a very important function of the HR department, which is visible to existing employees and potential new recruits.
Using?subjective “managerial discretion”?to determine pay awards is an outdated practice that typically upsets more people that makes them happy. Therefore, employing a systematic, transparent, and objective method of job evaluation is advantageous for employers and workers alike.