Market Pricing is NOT Job Evaluation

Okay, I’ve had it.  Normally, while known for being opinionated about my profession, and having climbed up on several metaphorical soap boxes in my time, I can take a lot.  Today, not so much.  A few weeks ago, World at Work published a report indicating “market pricing was the most common form of job evaluation.”  Today, in my periodic email from World at Work, there was a wonderful little video on market pricing, with a caption off to the side that called market pricing “the primary method of job evaluation.”  While I still have the ability, albeit limited, to control my blood pressure, let me repeat for the edification of readers of my blog:

MARKET PRICING IS NOT JOB EVALUATION!!

Job evaluation, by definition, is a method used to determine the internal value of jobs.  This is not new — it has ALWAYS been the definition of job evaluation.  Job evaluation is an “internal equity” method.   While I’m sure I can find dozens of textbooks that explain that ridiculously simple concept (and any material written by someone that isn’t a consultant selling market-based pay structures, or a survey company, will say the same),  I’m going to go to everyone’s favorite research tool, Wikipedia, and see what it has to say:

“A job evaluation is a systematic way of determining the value/worth of a job  in relation to other jobs in an organization.  It tries to make a systematic comparison between jobs to assess their relative worth for the purpose of establishing a rational pay structure.”

Kudos to Wikipedia for getting it right.  Clearly, market data doesn’t fit that definition, because it has nothing to do with the internal value of jobs.  So, let’s see what our friends the Wikipedia folks have to say about “labor market pricing”:

“Market pricing is the process for determining the external value of jobs.” [emphasis added]

I’m going to give the author of that Wikipedia article a gold star, and send an e-drink to his or her table.

What’s more frightening than the fact that professionals can’t tell the difference between the internal and external value of jobs is the fact that so many people may actually be thinking they are measuring INTERNAL values using EXTERNAL data.  What they are saying, in effect, is that these organizations only value a job based on how the market values it.  That’s scary!  What do these organizations do for the very significant number of jobs in their organizations that don’t match a benchmark job in a survey?   Do they not realize that thousands of organizations are “matching” their very complex jobs to a one sentence survey job description — meaning thousands of recognizably different jobs are being dropped into the same data hopper?  So where does their job fit in?  Are we going to use percentiles — which only show how data is distributed around the median, which is a quantitative measure, to try and represent the “qualitative” difference between how they perceive their three page job description against what other survey participants may have thought matched the one sentence survey job description?  What about all the jobs that are hybrids, or the jobs where people have extra responsibilities, or the “leads” that fit somewhere between the staff and supervisors, on a wide range of potential levels?

Let’s face it — if you are relying on market data as your sole means of determining the pay opportunities for jobs — you’re doing it wrong.  The only place that pure market data works is on those very few jobs that are clearly benchmarks, and are not impacted by any variations in duties and responsibilities — if that makes up 20% of all jobs, I’d be shocked.  Internal equity processes show organizations where they should pay more (or less) than the market for jobs based on how important those jobs are to the organizations.  I recently read an article by someone who claimed that job evaluation was “ineffective” because it “didn’t predict market rates.”  To this, I respond, beginning with the phrase “with all due respect…”

Duh.  That’s the point.

In the last twenty-five years, we’ve worked with dozens of clients in non-profit health care settings to show them that the reason they can’t get the high quality entry-level staff they need for their critical front line positions is because they are relying on market data.  The moment we show them the value of the job to them… and what it means in terms of what they should pay, the universal answer is “well, if we paid THAT, we’d get exactly what we need.”

If I told one of my big professional firm clients to pay $14/hour for their front desk receptionist… because that’s what the survey says… they’d laugh out loud… before they fired me.  They pay their front desk receptionists close to $40K… because that’s what the value of the job is to them.  They could put out an ad and weed through all the available candidates, but the odds that they would find someone less than $40,000 who would provide them with the confidence that their clients were being treated right from the get-go are pretty low.  Yes… if they looked hard enough, they would find a survey that would give them the same answer, but that means buying yet another survey, which conflicts with all the other surveys, and in that morass of insanity that typifies how many organizations use market data, they’d come to the conclusion that the $40,000 number was wrong.

A few weeks ago, a new client gave me the results of their most recent “market study” to use in our project developing a new salary structure to replace their market-based system.  Of the 90 or so in the study, there was “solid” market data for about 20 of the jobs.  The other 70 had a combination of “add 15% to this job” or “take the average of these three jobs” or a WAG (and since this is a family blog, I won’t go ahead and explain the acronym).  Yet they were confident that they were “at market.”

After 25 years of doing this kind of work, I’ve seen enough to know that thinking your pure market-based pay structure is either equitable or a method of “job evaluation” is delusional.   Sorry if I offend anyone, but someone has to speak the truth.  Want to debate, or find out more?  Drop me a line at ebura@mercesconsulting.com.

[NOTE: This article is repeated at Merces’ two blogs focusing on the manufacturing and FQHC industries.]

About Edmund B. Ura

Edmund B. Ura, MAIR, JD, works with governing boards, executives and human resources staff to develop methodologies for ensuring fair and equitable compensation programs that support achievement of organizations' missions. Contact Ed at ebura@mercesconsulting.com.

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