10
http://cbr.sagepub.com/ Compensation & Benefits Review http://cbr.sagepub.com/content/18/5/20 The online version of this article can be found at: DOI: 10.1177/088636878601800502 1986 18: 20 Compensation & Benefits Review Edward E. Lawler What's Wrong with Point-Factor Job Evaluation Published by: http://www.sagepublications.com can be found at: Compensation & Benefits Review Additional services and information for http://cbr.sagepub.com/cgi/alerts Email Alerts: http://cbr.sagepub.com/subscriptions Subscriptions: http://www.sagepub.com/journalsReprints.nav Reprints: http://www.sagepub.com/journalsPermissions.nav Permissions: What is This? - Oct 1, 1986 Version of Record >> at FLORIDA ATLANTIC UNIV on November 10, 2014 cbr.sagepub.com Downloaded from at FLORIDA ATLANTIC UNIV on November 10, 2014 cbr.sagepub.com Downloaded from

What's Wrong with Point-Factor Job Evaluation

  • Upload
    e-e

  • View
    215

  • Download
    2

Embed Size (px)

Citation preview

Page 1: What's Wrong with Point-Factor Job Evaluation

http://cbr.sagepub.com/Compensation & Benefits Review

http://cbr.sagepub.com/content/18/5/20The online version of this article can be found at:

 DOI: 10.1177/088636878601800502

1986 18: 20Compensation & Benefits ReviewEdward E. Lawler

What's Wrong with Point-Factor Job Evaluation  

Published by:

http://www.sagepublications.com

can be found at:Compensation & Benefits ReviewAdditional services and information for    

  http://cbr.sagepub.com/cgi/alertsEmail Alerts:

 

http://cbr.sagepub.com/subscriptionsSubscriptions:  

http://www.sagepub.com/journalsReprints.navReprints:  

http://www.sagepub.com/journalsPermissions.navPermissions:  

What is This? 

- Oct 1, 1986Version of Record >>

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 2: What's Wrong with Point-Factor Job Evaluation

20

What’s Wrong withPoint-Factor Job Evaluation

EDWARD E. LAWLER, III

ProfessorUniversity of Southern California

The point-factor job-evaluation system reinforces the traditional bureaucraticstyle of management. Survival in the 1980s and 1990s will depend ondeveloping new approaches.

The pay systems of most large organizations rest upon the foundations of a job-evaluation system, which frequently takes a point-factor approach. The argumentsin favor of this approach are many and have a long history behind them. Indeed, re-search on point-factor job evaluation goes back at least half a century. The Hay sys-tem is probably the best known point-factor approach to job evaluation, but thereare many others. Virtually every major compensation consulting firm has its ownpoint-factor approach, as do many corporations. A good guess is that over 95 % ofthe major U.S. corporations use the point-factor approach to evaluate their jobs.

It is usually argued that the point-factor approach brings equity and objectivityto a terribly difficult process - deciding how much to pay individuals in a large, com-plex organization. But along with its advantages, this approach produces a numberof unintended and unanticipated negative consequences that will be enumerated inthis article. In a sense this is a &dquo;biased&dquo; article because it focuses on the downside ofthe point-factor approach. I have chosen to take this orientation because, all too of-ten, organizations adopt the point-factor approach without realizing what all its ef-fects are.

For those who are not familiar with the point-factor approach, a brief descriptionis in order: The point-factor system typically starts with a carefully written job

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 3: What's Wrong with Point-Factor Job Evaluation

21

description that is the basis for the job evaluation. Typical plans include four factorsthat differ substantially in their weight (potential for earning points). Commonlyused factors include working conditions, problem-solving ability, knowledge re-quired, and accountability. Jobs are next assessed on how much of each factor theycontain. Points are then assigned for each factor, and a total point score is producedfor each job. The point score is then translated into a salary level. In the most completejob-evaluation systems, every job in the company ends up with a score. Point totalscan then be compared with the market to aid in pricing.

Management t Many of the specific criticisms of job evaluation rest on the ar-

Style gument that it is more than a way to pay employees; it is in~ ~

many ways an approach to management. It makes a numberof assumptions about the way an organization is managed and fits a particular styleof management. This is precisely why it has significant limitations and may be anobsolescent practice. The fit between the point-factor approach and managementstyle is often not obvious to organizations, however, when they first look at the ideaof doing job evaluation. Often, they tend to see an objective, &dquo;fair&dquo; way to pay people.But job evaluation is more than this: It is an approach to thinking about work andpeople’s relationships to their organizations. Indeed, it was originally developed tobe supportive of traditional bureaucratic management.The first indication of the bureaucratic orientation of job evaluation is its starting

point: the job description. Basic to the traditional principles of bureaucratic manage-ment are the ideas that an individual has carefully prescribed and described activitiesto perform and can be held accountable for them. Working from a tight job descrip-tion facilitates performance appraisal and also an evaluation of the individual’s worthto the organization. But it emphasizes control and encourages individuals to do onlywhat the organization tells them to do. In this sense, it is highly congruent with atop-down, control-oriented, bureaucratic approach to management. Indeed, this isjust the kind of management that was considered best when job evaluation was origi-nally developed in the early 1900s.

Beliefs about how to manage are undergoing a much needed, rapid, and dramaticchange. The old management concepts have been found wanting, because they donot fit the way organizations need to be managed to survive the world economy ofthe 1980s and 1990s. Briefly stated, the old management is too bureaucratic, too rigid;and it doesn’t use people effectively enough to be competitive. What’s needed is amanagement approach under which people will do what is right, develop and use newskills, focus on customer/client relationships, and generally be involved in the busi-ness of which they are a part.At this point it is premature to specify all the practices that are consistent with this

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 4: What's Wrong with Point-Factor Job Evaluation

22

new approach to management; however, it is not too soon to say that point-factorjob evaluation is inconsistent with the new style. The point-factor approach empha-sizes such things as doing the job as described rather than doing the right thing, andpeople as being worth what they are doing rather than what they can do. As notedearlier, this is hardly surprising since it was developed at a time when bureaucraticmanagement was at its zenith. Remembering that point-factor job evaluation is con-sistent with traditional management practice, let’s turn to some specific problems thiscauses in today’s economic and social environment.

What Not Underlying any job description and any point-factor evalua-

to Do

°~ tion system is a message about what is not included in the

to °

persons job responsibilities. Again, this sotto voce messagedovetails with the traditional management idea of holding people accountable forspecified duties. It does not fit well, however, with the idea that an individual shouldjump in and do what is right in the situation. In some extreme situations, employeesrefuse to do important tasks because they are &dquo;not in the job description.&dquo;

&dquo;

The productivity costs of this nonperformance are well documented; they includelost time, overstaffing, and poor coordination among specialists. The difficulties ofchanging to broader job descriptions are many. What often happens when organiza-tions want to utilize their people more effectively to improve productivity is that theindividuals demand pay increases. They demand pay increases because they havebought the notion that they’re worth what they do; therefore, if they’re asked to domore things, their jobs should obviously be reevaluated and upgraded.

Rein force Traditional bureaucratic management depends on a steep,

Hierarchy well-reinforced hierarchy for its effectiveness. Job evaluation

~~~~~~ ~ fits this scheme quite well since it measures differences in jobs Sin terms of hierarchical relationships. Large numbers of points are typically assignedto factors involving level of responsibility and number of reporting relationships. Asa result, job-evaluation scores clearly inform everyone of the organizations pecking

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 5: What's Wrong with Point-Factor Job Evaluation

23

order-that is, who has the most responsible job, the next most responsible job, andso on. Job evaluation can even differentiate among people at the same managementlevel bearing the same titles. This has some obvious advantages when jobs are beingpriced internally, but it also may have some severe negative consequences.

Job evaluation can create unnecessary and undesirable pecking orders and powerrelationships in the organization. In several organizations that I have studied, jobevaluation led groups that were relatively egalitarian and cooperative to become morehierarchical and power-oriented. In knowledge work and high-technology % ork thelast thing that is needed is a rigid hierarchical structure. Indeed, the key to successoften involves utilizing the technical knowledge and innovation that comes from thebottom of the organization.

Ualue The job-evaluation approach is based on the principle that

Orientation people are worth what they do. In many cases, this may notnen a Ion

be the most desirable cultural value for an organization. It

tends to depersonalize people by equating them with a set of duties rather than con-centrating on who they are and what they can do. It tends to deemphasize payingpeople for their skills and for their performances. In today’s rapidly changing, highlycompetitive environment, a message emphasizing growth, development, and goodperformance is more on target than one that emphasizes growing your job or gettingpromoted. If an organizations key assets are its human resources, a system that fo-cuses on people rather than on jobs is the better fit.

InternallExternal t Competitive benchmarking (focusing on what other compa-

Focus

~~&dquo;~~ nies are doing in the marketplace) is becoming an increasingly

°~&dquo;

important strategy for business success. In the ideal case, payrates should be part of this external comparison process. Indeed, some companies(TRW, for example) now try to target salary levels to how well the company performsin comparison with its competitors. Point-factor job evaluation, however, tends to fo-cus pay on the internal relationships among jobs. It purports to provide a commonmetric (points) which is comparable across all jobs in the organization. This makesit possible for a person to look across the organization and determine how his or herjob &dquo;should&dquo; stack up in terms of pay.

Thus, at times when employees need to be watching the competition, they oftenend up focusing internally on the pay of other individuals and on how they can im-prove their relative pay positions. This takes them away from the key business issue:external competitive comparisons. What’s more, it leads to a ratcheting up and infla-tion of internal pay rates. The natural tendency is to find a job that is relatively highlyevaluated internally and to use it as the benchmark that drives the internal pay struc-

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 6: What's Wrong with Point-Factor Job Evaluation

24

ture. This is an inevitable consequence when people are able to compare their jobson a common basis.

Strategic Large organizations are realizing that pay can be an important

Orientation strategic factor by helping to reinforce excellence in a particu-nen a Ion , .... , ,

&dquo;

,~~~ ~ ~°~

lar function or area. If, for example, there is a competitive ad-vantage in being the best at production, compensation can help by paying productionpeople more and giving them better incentives.Moreover, pay can be a strategic factor if particular units and particular businesses

can focus on their strategic pay issues. A company in multiple businesses can targetcompensation levels and practices to those multiple businesses. This has the potentialadvantage of aligning costs more closely with those of competitors and causing em-ployees to focus more on the competitive environment.A point-factor job-evaluation system often hinders strategic compensation manage-

ment because it encourages internal equity rather than external business equity andstrategic advantage thinking. Obviously, this can be overcome if organizations arewilling to translate the same points into different dollar amounts for different busi-nesses or functional areas, but this is often politically difficult to do. A companywidepoint-factor system highlights the fact that this is going on and often makes it politi-cally unacceptable.

Organizational I Today, organizatons operate in a world characterized by rapid

Change zona

rates of change and the need to adapt quickly and easily toange

change. If anything, the point-factor approach discourages or-ganizations from changing. First, the kind of work it takes to create job descriptionsand job evaluations generates a high investment in the status quo. Organizationalchange and reorganization become major work-load issues in the point-factor systembecause it is no small task to rewrite all the job descriptions and reevaluate all the jobs.

Perhaps the major job evaluation factor inhibiting change is its potential effect onthe relative pay of individuals. Most major changes require some individuals to giveup responsibilities and accountabilities while others gain them. If the point-factor ap-proach is in operation, change means that some people win in terms of increased payand others lose. This sets up competiton among individuals and often a strong resis-tance to much-needed changes. In short, point-factor systems often end up as servantsof the status quo rather than as stimulants for needed change.

After organizations have point-factor methods for a while, in-Point Grabbing dividuals become quite sophisticated in getting jobs evaluated

highly. They realize that creatively written job descriptionscan lead to pay increases, as can changed job duties. A considerable amount of time

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 7: What's Wrong with Point-Factor Job Evaluation

25

and effort can be spent by individuals on rewriting job descriptions so that they willbe scored more highly. And individuals can start grabbing added responsibilities toget more points. The added responsibilities can include extra equipment and moresubordinates - items that increase the cost of doing business.

Overall, in a rather direct although unintended way, point-factor systems actuallyreward individuals for creating overhead and higher costs. This, of course, is exactlythe opposite direction from the current trend toward low overhead, leaner and flatter

organizations, and careful expense control. Point-factor job evaluation has a ten-dency to reward individual managers who increase expense levels and add individualsto their staffs.

Honestyl Because inflated job descriptions can lead to higher pay levels,

Credibility there is a real danger that point-factor systems can encourage

~~~~~~~~~~~ and reward dishonesty. It is all too easy to learn that the

way to &dquo;beat the job-evaluation system&dquo; is to write overly flamboyant and inclusivejob descriptions. This is a kind of corporate misinformation that can be destructive.Evidence that this goes on is provided by the fact that most job-evaluation systemshave an internal audit or a desk audit system to catch supervisors who are mis-

representing their duties and their subordinates’ duties. In some ways, this is not thefault of the system so much as the fault of individual managers; but there are features

of the system that tend to encourage this kind of misreporting - most notably the ty-ing of pay levels to the job description itself.Over time, the writing of inflated job descriptions can become a standard operating

procedure in an organization. This can have three important negative consequences:First, point inflation can occur and as a result the organization simply ends up payingeveryone too much. Second, an organizational culture can arise in which it is okayto misinform the human resources department. Finally, an adversarial relationshipcan break out between the compensation department and the rest of the organizationif the former tries to correct the point-inflation problem.

Cost o f , A job-evaluation system is expensive to administer. It usually

Job-Evaluation requires a rather extensive internal compensation staff as well

Systems uatzon

as external consulting help. Indeed, when one looks at theys ems

amount of external support needed to maintain a job-evaluation system, it’s easy to see why many consulting firms are so enthusiasticabout the use of point-factor methods. Organizations typically pay such firms for theinstallation of systems and for ongoing audits, market data, and even administra-tive help.

Moreover, a large internal staff is needed to administer the system. After all, thou-sands of job descriptions need to be written and maintained; job-evaluation commit-

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 8: What's Wrong with Point-Factor Job Evaluation

26

tees need to meet; people need to be trained in job-evaluation technologies; and, ofcourse, jobs need to be priced. As mentioned earlier, system maintenance can alsotake up a great deal of employees’ time: not only do they need to provide job descrip-tions, but they typically serve on job-evaluation committees. In short, job evaluationis a tremendous producer of records, numbers, and bureaucratic overhead.

Because most job-evaluation systems assign a heavy weight toCareer Orientation level of responsibility and reporting relationships, point-factor

systems strongly reinforce the idea of a management hierarchy.Virtually every point-factor system creates an internal wage structure in which pro-motion is the major way to increase compensation. Promotion is the surest way toincrease one’s points and, therefore, one’s pay. This relationship makes considerablesense in organizations that are looking for the best and the brightest to move up thehierarchy. It nicely reinforces a &dquo;linear career orientation&dquo; and fits well with tradi-tional top-down, control-oriented management. In traditional management, it is

highly desirable to have most- if not all - individuals striving for upward mobilityso that the best and the brightest end up in the top management positions.The situation is quite different, however, in knowledge work and high-technology

work. To be successful in these situations, many organizations need individuals withtechnical excellence as well as individuals who prefer to make horizontal career movesin order to develop a broad-based understanding of the organization. The technicalspecialist career role and the horizontal career orientation are clearly not reinforcedby the typical point-factor approach. Instead, individuals choosing these careers canlook forward to static and - potentially even declining - compensation if their organi-zations use a point-factor approach.One additional note is relevant here: As organizations become flatter and leaner,

there is less opportunity to move up the hierarchy. This raises further questions aboutthe desirability of a pay system that strongly rewards people for upward mobility.If upward mobility is going to be less available, perhaps it is not as important to moti-vate people to try to achieve such mobility. Indeed, doing so may be counterproduc-tive because it will produce large numbers of frustrated, disillusioned, dead-ended in-dividuals in the organization. This point dovetails with current U.S. demographicsshowing the baby-boom generation entering management positions. They are enter-ing in large numbers, but there arena large numbers of top spots for them to occupy.Point-factor systems can only aggravate their disappointment.

Ef fects 0 f Inherent in the point-factor approach is the idea that promo-

Promotion tion warrants a significant pay increase. This is not because a~°&dquo;~°~~°~ person is necessarily more valuable or skilled or has accom-

plished anything worthwhile, but rather because the person has taken on additional

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 9: What's Wrong with Point-Factor Job Evaluation

27

job responsibilities. Indeed, in many organizations, whether a career move is consid-ered &dquo;upward&dquo; is dictated by the number of additional job-evaluation points that thenew job involves. Because of this, individuals may refuse job moves that are &dquo;not

worth enough additional points.&dquo; Some organizations become relatively inflexible intheir career paths because employees look for a certain number of additional pointsbefore they move. If this is too ingrained in the organizations culture, certain desir-able moves get ruled out because they are not worth enough additional points.

It’s possible to challenge the whole logic of a pay-increase promotion. An alterna-tive approach is to wait until the person promoted demonstrates ability to do the newjob before giving more money. Giving money simply because a person has taken onnew responsibility is a nonperformance contingent reward practice. As a result of it,many organizations end up spending a great deal of their pay dollars to reinforce pro-motions rather than performance levels or skill growth. Is it any wonder that em-ployees often spend more time worrying about what their next jobs will be than abouthow well they are performing their present ones?

Other Llses In many organizations, the points developed by the point-

and Misuses factor job-evaluation approach end up getting used for a num-

~~ °&dquo;~~ ber of nonpay purposes. These include who gets parking

spaces and other perquisites, who gets included in certain meetings, and who gets cer-tain communications. In short, a whole host of positives often get attached to achiev-ing higher and higher point totals. It is perhaps unfair to criticize the point-factor ap-proach because of the other uses that are made of it, but it does get used in these ways.The problem with :using it in these ways, of course, is that the point-factor systemwas not designed to be a multipurpose evaluation of who should engage in certainorganizational activities and get certain perquisites and benefits.

Using job-evaluation points more broadly has two decidedly negative effects: First,it makes them even more important than they might be if only pay were contingentupon them. This wouldn’t be a problem if they were objective and correct, but it isa problem since they are inherently subjective and, as noted earlier, subject to somemanipulation. Second, their use for other purposes is often inappropriate simply be-cause they don’t measure the kind of things that ought to be considered when suchmatters as memo circulation and meeting attendance are being decided. They get usedbecause they are there and they are quantitative and seemingly objective.

These criticisms of the point-factor approach highlight that itConclusion is more than just a pay system. It is a way of thinking about

I work and organizing people. It reinforces a particular valuesystem and a particular orientation to management. The decision to adopt it shouldtherefore not be taken lightly. Once it is installed, it can be a terribly captivating and

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from

Page 10: What's Wrong with Point-Factor Job Evaluation

28

even dominant part of corporate culture. In extreme cases, organizations end upmanaging in ways that make their point-factor job-evaluation systems work: The job-evaluation system ends up influencing the kind of businesses they go into, the kindof reorganizations they make, and the kind of career moves that take place - a classicexample of means/ends reversal.There are, of course, alternatives to the point-factor job-evaluation approach. Cer-

tainly one possibility is to stay with a job-based approach and simply take all, or vir-tually all, of the jobs to the market individually. This solves some of the problemswith the point-factor approach but it may also increase the work load for the compen-sation staff. It means more emphasis on pricing jobs and greater effort in the salary-survey arena. In some respects, however, this may be functional because it helps focusthe organization externally and may produce more competitive overall compensationcosts.

The second alternative is to go to a skill-based pay system. Describing skill-basedpay is far beyond the scope of this article, but it is appropriate to note that skill-basedpay is gaining popularity for production jobs. It has always been practiced to a degreefor technical people and knowledge-work people. So far no major corporation hasadopted it on a corporatewide basis, but it does show promise as an alternative tojob-based pay.

Overall, point-factor job evaluation seems to have outlived its usefulness. For de-cades, it was a valuable technique for determining relative compensation levels. It

served traditional management well; but just as traditional management is becomingless appropriate, so are point-factor job-evaluation approaches. It is certainly prema-ture to say that we have seen the last of the system, but it probably is fair to say thatthe point-factor approach has reached its zenith and increasingly will be replaced bynew systems based on a new approach to management.

at FLORIDA ATLANTIC UNIV on November 10, 2014cbr.sagepub.comDownloaded from