Job evaluation: Compensable factors for your startup (2024)

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A job evaluation plan is a tool that helps your startup determine the internal value of a job in order to assign the appropriate salary level. The job evaluation plan defines the compensable factors used to assess the relativity of jobs within an organization. The job relativity can be aligned with the external worth of the same jobs by reviewing benchmark data (described in more detail below).

Primary compensable factors of a job evaluation plan

The point factor method is the most commonly used approach to job evaluation.

This method identifies four primary compensable factors used to determine pay. These factors include:

• Skills (years of experience, level of education and overall knowledge)
• Responsibilities (supervision of others, fiscal accountability, customer relations and the list of responsibilities of the position itself),
• Mental and physical effort (Decision making, problem solving, degree and amount of concentration, level and frequency of physical effort)
• Working conditions (overall environmental factors such as location, hazards and any extreme factors)

Tailoring the compensable factors for your startup

When identifying compensable factors, ensure that employees as well as management are part of the job evaluation process so that you gain their buy-in.

To be useful in comparing jobs, compensable factors should possess the following attributes:

1. They must be present in all jobs.
2. They need to be definable and measurable.
3. The factor must vary across the company. A factor found in equal amounts in all jobs would not have value as a basis of comparison.
4. They must be observable. Compensable factors can be thought of as the job-related contributions of employees.
5. They need to fit the organization. Organizations design jobs to meet their goals and to fit their technology, culture and values.

Creating a job evaluation plan

A job analysis describes a job. 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. Creating a job evaluation plan involves a number of steps:

1. Collect job information: Record information about the position in a job description template. If your startup includes competencies in the job definition, add these to the job description.
2. Develop the method: Using an “off-the-shelf” point factor system as the basis for the plan is recommended for small organizations. (This system can then be fine-tuned to reflect any specific nuances from a job value perspective—see
   step 3.)
3. Fine-tune the compensable factors: This is the heart of job evaluation. Not only do the compensable factors rank the job within the organization’s job hierarchy, but they also clearly outline what the company values are willing to pay based on them. It is important that each factor be clearly defined and weighted according to company and industry practices.
4. Review the job analysis: Have each job description reviewed by a manager, and, if possible, a member of your talent management team, to rank each compensable factor. The manager alone should not perform the evaluation, it should also include HR.
5. Develop a job hierarchy: By comparing and aligning jobs internally as part of the job evaluation process, you develop a job hierarchy. Typically, this can be determined with two or three employees who understand the company’s mandate and business plan.By reviewing the job evaluation points that each job has and by grouping jobs in similar point bands, the job hierarchy takes the form of a levelling system.
   

   Example:

   If your startup has 10 jobs and four jobs have 100 to 250 points, with four others having 250 to 400 points and the last two having 400 to 600 points, you would have three point bands.
   This would equate to three job levels in the hierarchy. It is possible to have many point bands, but 10 is usually enough for even large organizations.

6. Create the salary ranges: Price the job structure and create salary ranges by aligning the job hierarchy with benchmark jobs in compensation surveys. This would create a market rate for each job level that can be used to determine salaries for each individual in the job. A salary range could be created around this market rate based on varying levels of experience and performance.

Pay equity legislation and job evaluation requirements

Each province will have its own requirements for pay equity and job evaluation requirements. For example, all private organizations in Ontario and Quebec with 10 or more employees are responsible to ensure that they meet that province’s pay equity legislation, so it is necessary for even small companies in the province to have a job evaluation plan. Please review the Employment Standards Act (ESA) to find information relating to these laws impacting pay equity in your province. Having a job evaluation plan will enable you to compare female and male jobs according to their job value, to ensure pay equity. Another method of job evaluation, market pricing, while easier to implement, does not meet provincial Pay Equity Act requirements without the addition of an internal job-based valuation system.

Getting started with job evaluations at your startup

Job evaluation is often seen as a cumbersome, complicated, and time-consuming process, especially for small companies without a Human Resources (HR) team for support. Employees may regard it as an arbitrary and complicated electronic system that generates a mystifying salary rate. The good news is that with some guidance, the job evaluation process can be simplified and understood by executives and employees. If you are unsure where to start, create standard job descriptions for each employee that include the compensable factors mentioned above. This will act as the foundation for your job evaluation plan. It is highly recommended to seek the advice of an HR professional who has experience with the job evaluation process.

Summary: By comparing different compensable factors, a job evaluation plan helps you assess the value of one job relative to another to assign the appropriate salary level.