What Are Market Pricing And Job Evaluation?

Market pricing
Market pricing is a system of collecting data on the pay rates for similar
jobs in other organisations to establish their market rate and track
movements in those rates. The aim is to set the organisations own pay
rates at an appropriate level to recruit and retain the staff it needs.
Although the concept of a market rate for a job is common, theres no
such thing as an accurate single rate of pay for a job or role, and rates
may vary within the same occupation and in the same location.
Its important for employers to consider carefully how to interpret the data
collected and where the organisation wants to position its salary and total
remuneration levels in relation to the market.

Job evaluation
Job evaluation is a method of determining on a systematic basis the
relative importance of a number of different jobs1. It can be a useful
because job titles can be misleading, either unclear or unspecific, and in
large organisations its impossible for HR staff to know each job in detail.

Job evaluation is typically used when:

Determining pay and grading structures
Ensuring a fair and equal pay system
Comparing pay rates against the internal or external job market.
Internal and external approaches

Job evaluation can be used as a way of matching jobs to enable market

pricing to take place (although other approaches exist to compare jobs).
However, there are tensions between job evaluation and market pricing
approaches.
Job evaluation has an internal focus as it ranks jobs and their relative
importance within an organisation, whereas market pricing has an

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external focus as it aims to compare organisation pay rates with those in

the wider labour market.
Employers need to resolve such tensions if they wish to ensure that pay
rates remain both internally equitable and externally competitive. For
example, where a particular job commands higher earnings in the external
market than justified by an internal job evaluation exercise, one approach
is to use temporary market supplements to top up earnings for that role.

Approaches to market pricing

The use of market pricing can be linked to the use of job evaluation
schemes.
Market pricing exercises involve the use of some form of job matching to
enable pay rates in the organisation to be compared with equivalent jobs
in other employers, with a view to setting appropriate rates to recruit and
retain staff. A range of options for comparing jobs exists from basic
analysis using job titles or job descriptions through to the use of analytical
job evaluation schemes.
Employers must also decide what type of reward they wish to compare,
for example, basic salary, total earnings (including bonuses, and so on) or
the wider package (including such elements as pension provision).

Gathering pay data

Giving jobs a price is a separate exercise to the job matching process,
requiring the gathering of appropriate pay and benefits data.
Sources of pay data can also vary from specifically collected survey
information to more general commercial data. Data sources are not
mutually exclusive. For example:

National survey data might help set and maintains pay structures

and rates for management grades.

Locally collected data might be used to set rates for secretarial,
clerical and process staff.
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Occupation-specific data might inform pay decisions for groups such

as marketing staff or accountants.

Market pricing exercises may assume that comparable pay data exists
that is easily obtainable and accurate. This is not always the case: some
jobs are so specialised that few, or even no, external comparators exist
and assumptions have to be made about comparable job content, which
may compromise data accuracy.

Choosing a pay policy

Because employees have varying skills, attributes and abilities, and
employers themselves vary in terms of their cultures, performance and
ability to pay, there is often a range of pay rates in the market, even for
the same jobs. Therefore, all organisations have to decide where they
want to position themselves in the labour market to achieve their business
and staffing objectives.
For example, pay policies might be positioned to pay at the median level
for the sector, occupation or locality. Others might use market data to
feed into reference points in pay ranges, with rates for individual
employees set according to factors such as performance.
See our factsheet on performance-related pay for more

Organisational practice
There's very little published information on organisations market pricing
practices. In general, private sector companies tend to benchmark against
their own industries, and against companies of similar size (internationally
as necessary). They also often age pay databases up to a common date
by applying a multiplier based on annualised salary movements, although
such approaches are not invariably accurate. Some companies match
generic jobs to a management consultancy database.

Sources of pay data

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For the purposes of job pricing, there are four main sources of pay data:
Published data from pay surveys and similar organisations can give some
indication of going rates. The degree to which this data is useful is limited
because of problems in comparing like with like, but they can help with
periodic reality checks on levels and movements, and are particularly
valuable sources of data on specific occupations or localities.
Pay clubs of employer groups that regularly exchange information on pay
levels. These generally only allow participants access to the data.
Special surveys funded by individual organisations from specialist pay
consultancies but access is usually limited to the contractor and
participants.
Consultants pay databases containing data collected on a systematic or
ad hoc basis which they relate to the results of their job evaluation
schemes to compare pay rates across organisations on a common basis:
this ability is one of the attractions of job evaluation for many
organisations. To be viable it is important that the factors measure
common job/role characteristics and can enable comparisons to be made
across different jobs/roles and organisations; the data is based on an
adequate sample; and the job analyses are carried out systematically and
conscientiously.
The main providers of publicly-available pay settlement data are:
XpertHR (formerly Industrial Relations Services) private and public sector
pay reviews
EEF the manufacturers organisation manufacturing pays settlements
The Labour Research Department (LRD) collective pay agreements.
A wide range of official data on pay rates (including detailed breakdowns
by factors such as occupation and region) and earnings trends for
example, the Annual Survey of Hours and Earnings (ASHE) is also

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available from government websites (see link to UK National Statistics in

Useful contacts.

Choosing and implementing job evaluation schemes

Employers operate job evaluation schemes for a range of reasons,
including the development of clear and orderly pay and grading structures
and to help counter equal pay claims, as well to assist with market pricing
where required.
A single job evaluation may be implemented to cover the whole workforce
or employers may operate different schemes for varying groups of
employees. The former approach is often favoured as this is likely to help
counter any potential equal pay issues.

Types of job evaluation

There are two main types of job evaluation: analytical schemes, where
jobs are broken down into their core components, and non-analytical
schemes, where jobs are viewed as a whole. The use of analytical
schemes is more popular because of the capacity to help provide a
defence against equal pay claims.

Analytical schemes
These offer greater objectivity in assessment as the jobs are broken down
in detail. Examples of analytical schemes include points rating and
factor comparison approaches.
Points rating - the key elements of each job, which are known as 'factors',
are identified by the organisation and then broken down into components
which may also be weighted. Each factor is assessed separately and
points allocated according to the level needed for the job. The more
demanding the job, the higher the points value. Examples of factors
commonly assessed include:

knowledge and skills

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people management
communication and networking
decision-making
working environment
impact and influence
Financial responsibility.

Factor comparison is also based on an assessment of factors, though no

points are allocated. Use of this method is less widespread than points
rating systems as the latter approach enables a large number of jobs to
be ranked at the time.
Non-analytical schemes
These are less objective than analytical schemes, but are often simpler
and cheaper to introduce. Methods include job ranking, paired
comparisons and job classification.
Job ranking -puts jobs in an organisation in order of their importance, or
the level of difficulty involved in performing them or their value to the
organisation.
Paired comparisons - compares each job in turn with another in an
organisation. This takes longer than job ranking as each job is considered
separately.
Job classification, also known as job grading. Before classification, an
agreed number of grades are determined, usually between four and eight,
based on tasks performed, skills, competencies, experience, initiative and
responsibility. Clear distinctions are made between grades. The jobs in the
organisation are then allocated to the pre-determined grades.
Developing job evaluation schemes
Whether adopting an analytical or a non-analytical approach,
organisations have three main options over scheme design and
development:
a scheme may be developed in-house
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a consultancys off-the-shelf package may be purchased

a consultancy may tailor its package to suit the organisations needs.
The system selected will depend on the size of the organisation and the
aim of the job evaluation exercise. The Hay Group's Guide Chart-Profile
Method is the most widely used scheme, but following large consultancies
also offer off-the-shelf or tailor-made schemes:
Aon Hewitt
Mercer
PricewaterhouseCoopers
SHL Group
Willis Towers Watson.
Many smaller independent consultancies also offer job evaluation
services.
Schemes which operate in the public sector, often developed by
consultancies, include:
JEGS (Civil Service Job Evaluation and Grading Scheme)
GLPC (Greater London Provincial Council)
HERA (Higher Education Role Analysis)
National Joint Council (NJC) for Local Government Services
Agenda for Change job evaluation scheme (NHS).
Other factors to consider
Job evaluation is a complex and time-consuming task and many
organisations draw on the expertise of external organisations to help. The
key issues to consider include:
The process is often as important as the results.
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Job evaluation is an ongoing process.

An appeals procedure should be established before the evaluation begins.
Clear, detailed and up-to-date job descriptions have to be drawn up.
The more complex the scheme, the more detailed the job description
needed.
Accurate records of decisions have to be kept.
The results have to be checked to see if there are any pay anomalies.
Effective communications are essential, as employees may have concerns
over their future job grading and pay.
CIPD viewpoint
Job evaluation and market pricing exercises need to be reviewed regularly
to ensure such approaches continue to meet changing business needs. Job
evaluation is an assessment of the role, not the person doing it, and
should be based on a fair, transparent system that is effectively
communicated and understood by employees. The type of scheme chosen
will depend on organisational needs, but any staff making decisions on job
roles must remain impartial and may require training in the chosen
system.

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