Page 184 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

170 The Complete Guide to Executive Compensation

There are literally thousands of different job-evaluation plans in existence throughout
the country at the executive level. Probably no two companies have exactly the same job-
evaluation program. However, these many plans can be categorized into essentially five types:
ranking, classification, point factor, maturity, and market pricing.
Whatever system is used, it must correlate strongly with what the company perceives as
important; otherwise, it will surely fail. In addition, the executives being evaluated must view
it as being valid; otherwise, it will similarly fail. Thus, to be workable, it must be acceptable
to both the evaluator and the evaluated.

Ranking

The ranking approach is by far the simplest; it is a nonquantitative method of arraying jobs
in order of importance. This array is accomplished by comparing two jobs with one another
and determining which is more important. The third job is compared with the first two, and
its position with respect to the first two is determined. The process is repeated until all jobs
have been slotted into the array.
One difficulty encountered in such a plan is deciding whether a group executive with
four different divisions (each with $50 million in sales) should be worth more than a division
head with $200 million of business. The argument “for” focuses on the additional layer of
management in a centrally managed company; the argument “against” says the real value
rests with the division managers in a decentralized organization.
The simplicity of the ranking approach to job evaluation is its greatest virtue: little
preparation is required and it works well when not too many jobs are involved.
Unfortunately, simplicity is also its greatest drawback. Many find it difficult to think in terms
of the whole job. Therefore, there is a natural tendency to rate each job on the basis of its
dominant characteristic(s). Such an approach will definitely affect the resulting hierarchy.
Another drawback of the ranking method is that the array reflects absolute rather than
relative differences. In other words, there is no way of knowing whether the difference
between the vice president of human resources and the director of compensation and bene-
fits is equal to, greater than, or less than the difference between the director of compensation
and benefits and the manager of compensation. Ranking will simply report the sequence in
the ascending hierarchy—not the relative differences between the various jobs.
Classification

Whereas the ranking method requires comparing jobs directly with each other, the classifi-
cation method calls for comparing each job with a set of written standards. For example, if
35 grades were in effect, each grade would have a set of standards describing the type of job
that should be classified in that grade.
The advantage of this approach is that grade levels are predetermined, and identifying
the grade for the job simply requires matching the most appropriate descriptors.
Unfortunately, this also means a significant investment of time and effort in developing these
standards, which must be sufficiently generic to be relatable to any type of job and yet suffi-
ciently specific to allow direct comparison with a particular position. Obviously, the greater
the number of grades, the greater is the difficulty in separating and identifying distinctions.
Another problem with the classification method is its inflexibility (i.e., the number of
grades). As the organization matures and more levels of management are introduced, it may not