Point Factor Job Evaluation Concisely Summarized

Warning!  This is an advanced Point Factor Job Evaluation briefing. Proceed at your own risk.

Point factor job evaluation systems are always imperfect temporary mathematical models.  Point plans were originally created to apply internal equity to jobs that could not be appropriately matched to competitive market benchmarks.  Good survey data might exist for Widget Apprentice and Widget Expert while no other employer might have a job equivalent to your unique Widget Generalist.  Without reasonably precise survey matches, pay decisions must hinge on some other process.

“Pegging” is one such option, picking a spot between two others. A unique job might fall between two known benchmark values, but you still need another form of job evaluation to determine exactly how much between them. Interpolations create arbitrary guesstimates of exactly where an intermediate occupation should be inserted between its higher and lower occupational cousins. Point plans are popular with those who prefer a precise number suggesting exactly how much more or less.

Point factor plans convert scalar information (above or below) to interval status (i.e., -8 or +5) with precise numbers.  A mathematical language is created to rank job characteristics in terms of levels tied to weighted numbers that translate into pay.  Numeric points are accumulated across a number of evaluation factor dimensions with both scalar and interval values and are applied to administer compensation. This permits the interval-based interleaving of unique jobs with benchmark jobs sharing similar overall value scores. 

When any specific plan was first created is usually easy to discover. The lowest number of "points" you can establish for any job will generally be the minimum wage of the year it was initially designed.  Bringing old point values up to date for modern use is more complex.  Simple flat (or polynomial) formula increases applied to outdated weighted score numbers will never accurately capture true changes in those underlying factor values over the years.  But the marketing lifetime of off-the-shelf prepackaged job evaluation plans is greatly extended by skipping factor revalidation steps. Also, it is much cheaper and easier to train sales people and support consultants on a relatively static uniform version of a point-factor plan. If the product being sold is substantially different for each client, its cost will be higher. In addition, any plan requiring an advanced mathematical vocabulary for explanation or maintenance will encounter resistance from all parties. It's much easier just to make and resell a cookie-cutter standard model rather than customize each system for optimal statistical precision. Obviously, those are arcane “secrets” generally hidden from the end users who usually don't care about it, anyway.

That said, most point factor systems survive because they overpay the jobs.  No one will ever complain about being overpaid. The moment an evaluated job's internally equitable pay falls too far below the market-clearing rate, it generally gets re-evaluated upwards, reclassified by a content/title tweak or artificially promoted.  Occasionally, it will be green-circled, placed in a superior range structure or given a higher-paying conversion formula.  Without those accommodations, the company would hemorrhage workers and close down for lack of competent personnel.  Underpaying brings obvious penalties while overpaying is universally embraced.

Other job evaluation systems that are less precise for interval positioning also exist: whole job, internal benchmarking, paired comparison, slotting, factor comparison, committee rankings, tabular classifications and variants. 

It is important to recognize that "market pricing" (where dollars are the points) remains the simplest form of point-factor job evaluation.  Ranking work by current market value is problematic, however, when no market match exists.  Point plans that add unique rationales, standardize work valuation language and apply terms used as "cutters" can justify further differentiation and permit peer match refinements.  Essential point-factor job evaluation system elements usually cover comprehensive work content details along dimensions of the skill, effort, responsibility and working conditions required for each incumbent.

I better stop, because this is probably already far more than anyone wanted to know about this topic.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After corporate HR jobs in chemical and pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.

Image of Counting Scale by Yulius Adrianto, courtesy of Creative Commons

Comments

[Jay Schuster]

Jim, I love it!! Job evaluation will outlive us all by decades. I can't imagine how many of these things I can be accused of 'implementing' over the years. Some of them are still 'pointing the way' (excuse the pun). The thing that always surprised me, no matter how many of these 'things' I was involved in, was the patience organizations had with them. All the job description writing, the people sitting around 'scoring jobs', the 'discussions about how many 'points' one job got compared to another, all of that consumed time and resources.

I remember visiting a CEO who had just hired some other consulting firm and paid big bucks to implement a 'point-factor plan'. The guy said to me, "Jay, my secretary only got 799 points and the secretary of the VP Finance got 900 points and that can't work in this office. What do I do?"

To 'fix' the problem he had I 'added' another 50 points to the job held by his secretary. The CEO 'gasped a thanks' and he loved me forever for making it 'work' again.

Love your discussion. Still laughing.

[E. James (Jim) Brennan]

Thanks, Jay, for the pointed on-target observation which is oh so true! The adventures of intensive job evaluation are many and frequently amusing ... except for the ones that make you want to cry.

I suspect that any process that involves a lot of face time wielding power with executives is difficult to release. That's the only explanation I can find for retaining JE systems that require a lot of negotiations and resulting logrolling instead of relative clarity and simplicity.

[Tony Bergmann-Porter]

Loved Jay's comment. I'M still laughing.

My sense is that the amount of care and feeding these things require ceased to be justifiable, let alone feasible, in most private sector organizations by sometime in the 1990s. And as Jim so correctly points out, they either collapse or must be gamed in the face of market pressure.

Point factor plans do have the seductive appeal of providing an appearance of rigor and precision to what might otherwise be messy and value-laden decisions. And they might still hold value for very large organizations with well-defined internal labor markets and pay policy lines above P50. Especially if those large organizations contain lots of STEM workers, who, in my experience, like things that are (or at least seem to be) precise.

[E. James (Jim) Brennan]

Perfect addendum, Tony! Thanks. Those insulated from the general open market or who own it tend to love convoluted self-justifying systems that enshrine internal equity. There's always a market for "black boxes" that supply whatever answer you want, wrapped up in persuasive jargon.

JE plans that are actually regularly validated to accurately capture the current external/internal values are insufficiently "flexible" for wide popularity. Smoke and mirror shows draw bigger crowds than transparent windows.

[Jay Schuster]

You folks are 'on target'.

If not 'point factor', what solutions do you think are best for aligning work in a reasonable fashion? I admit being a strong fan of paying for skill and competency applied to do work rather than whatever is in a job description. However, my views seem to be in the minority.

Maybe 'ranking to market'? What is the 'secret sauce' of determining what work is worth???? I actually remember when Ned Hay invented his point plan in the days or ore. I always envied him and wished it was the "Jay Plan" and not the "Hay Plan". How many organizations use or used some version of the "Hay Plan"??? A zillion???

[E. James (Jim) Brennan]

No one single fixed structure can accurately capture the appropriate "rank placement" (combining external market and internal equity) for more than a few years. Alignments change too swiftly. Note that a lot of outfits therefore limp along under badly inaccurate heritage systems, patching them as required to keep vital talent. Eventually, they tear down the old hierarchy and build another. Remember the Phoenix Plan, designed for SRP?

Market takes priority for organizations struggling to survive, but internal equity trumps lower market values when the enterprise is fat and happy. Point factor remains the most precise interpolation methodology, but every approach to valuing unique or non-benchmarked jobs must reflect the enterprise's values for the skills and competencies they currently require.

Work-pay alignments are like lining up kids by height ... the order found last year won't work today or next year. Afraid I lack enough space (or wits) for a full answer to all those challenges, Jay!

[Chip Stalter]

We continue to use point factor and it works fine for us. We benchmark a percentage of jobs each year and regress a line through them and place all jobs in that region or group in their own range based on their point intercept with the line. We can show enough differentiation between jobs to make it sustainable, and since we go to market annually, we can remain competitive. We have a team of six that evaluate the position questionnaires when they are created or updated. It's not a big deal for us. The only market pressure that hurts us in this process is government-created inflation on minimum wage.

[E. James (Jim) Brennan]

Great to hear a positive endorsement for point-factor plans, Chip! You help prove the old adage that no generality is always true (including this one).

Perhaps your company fits in that magic sweet spot zone where it continues to provide both competitiveness and equity. As you indicated, as long as you have a stable internal/external reality, a solid mathematical model will retain its utility. Must admit, I had clients of custom-designed Phoenix Plans that kept their point-factor systems for over two decades. They also fit into that ideal zone.

[E. K. Torkornoo]

Such erudite provocations so early in a new year! I remember my early years as an analyst, a footsoldier for point-factor plans and every sickening detail thereof. That was in Minneapolis-St Paul. Later, 20 years ago, I met someone in Chicago that I thought was 'lazy' to use market-referenced job pricing which he kept calling 'market pricing' much to my chagrin (wait, wait, don't judge me yet until you read the last line).

Today, I've long been converted and find the 'market pricing' (with all it's imperfections in matching, slotting, levelling, etc.) to be more practical, aligned to the realities of the market, better to help us quickly move on with the real work of delivering to achieve results and being paid for performance (instead of, say, hair-splitting finer points of job content, arguing with those feathering their nests or empire building for job upgrades, etc., etc. ad nauseam).

But some sectors dear to us all still need traditional job evaluation or cannot afford to price jobs to 'markets' broadly defined. So some us take the current form of our inherent snobbery as practitioners of compensation & rewards elsewhere, unless compelled by the 'market' to take jobs or assignnents in those more traditional sectors. We are human after all. Thanks again Jim.

[Jay Schuster]

Jim mentioned the 'Phoenix Plan" that was designed for Salt River Project. This was a 'groundbreaking point factor plan" (GASP) that used quite powerful statistics to relate market to the value of points in a point-factor plan. It was designed by I believe Dave Thomsen and Marv Dertein on an SRP project. The 'magic' of this solution was how it combined a point plan with the market.

If I am not mistaken a lot of this 'technology' was applied to the development of the ERI 'family' of products and services. Proving that you can do some nifty innovation even in the 'land' of job evaluation.

Jim can probably elaborate on this better than me since he brought it up.

About the only organizations left that can ignore the realities of the marketplace are governmental agencies that can pass on all their inflated labor costs to the taxpayers. (but that is a tale for another time) Most every organization that needs to worry about getting good people and managing labor costs effectively must consider the realities of the market.

[E. James (Jim) Brennan]

Yes, we named it that partially because the utility was based in Phoenix but mostly because it was a renewable process literally reborn when revalidated every few years. Compensation Manager Marv invited us in to custom-design a plan that would combine the best and exclude the worst from all existing point factor systems.

Our client demanded one totally unique twist: a negative factor for direct subordinates. One of the "internal equity" elements became a deterrent against empire-building. The more direct reports you had, the less your job's value. The fewer it took under you to accomplish your mission, the more your job was worth. It was quite successful.

The whole idea was not to start out with fixed factors, dimensions and weights but to instead test possible factors and levels for reliability and market-predictive accuracy. You end up with a handful of tested Hay-type factors/levels/weights that best fit the specific enterprise. Points were dollars.

Dr. Thomsen's later testimony in Congressional EEOC hearings emphasized how we proved that you can design pay systems that capture internal equity and market reality in unbiased ways. Factors that predicted protected class status were eliminated and replaced by "cleaner" alternatives that assured gender-free pay although missing the market target by a bit more. Since no two firms pay exactly the same, it was quite acceptable. Disputed cases were subjected to more intensive PAQ-style evaluations by a joint labor-management panel.

That approach won high praise by GAO, who reported on how it worked at a bunch of firms that applied it. Our client-unique plans comprised about half of the case examples cited as effective EEO-compliant market/equity approaches in its Congressional report: Description of Selected Nonfederal Job Evaluation Systems, GAO/GGD-85-57, July 31, 1985, available from either GAO or the Gov. Printing Office.

[E. James (Jim) Brennan]

E.K.: Thanks again for the contribution. Always love and appreciate your eternally on-target comments! Also admire your articulate presentations.