5.2 Job Evaluation and Pay Structure Basics

Building Pay Decisions From Job Data

Job evaluation is the systematic process of assessing the relative worth of jobs inside the organization. It focuses on the role — duties, responsibility, required skill, effort, decision authority, and working conditions — never on the personality, tenure, or likability of the person currently holding it. There are four classic methods to recognize:

The point-factor method is the most common in mid-to-large employers because it produces a defensible numeric hierarchy. Compensable factors are the job characteristics the organization agrees to pay for — typically skill, effort, responsibility, and working conditions (the same four factors named in the Equal Pay Act).

From Job Worth to Pay Structure

A pay structure turns job worth and market data into a usable administration tool. Jobs of similar value are grouped into a pay grade, and each grade has a pay range with a minimum, midpoint, and maximum. The midpoint usually reflects the market reference point (the going rate from salary surveys) for fully competent performance.

Key math the PHR expects you to interpret:

• Range spread = (Maximum − Minimum) ÷ Minimum. A grade with a $40,000 minimum and $60,000 maximum has a 50% spread. Entry/clerical grades run ~20–40%; professional ~40–50%; executive ~60%+.
• Compa-ratio = Employee pay ÷ Range midpoint. A compa-ratio of 1.00 (or 100%) means the employee is paid exactly at midpoint. Below 0.80 may signal underpayment relative to job worth; above 1.20 signals the employee is near or over the top of the range.
• Range penetration = (Pay − Minimum) ÷ (Maximum − Minimum). It shows how far through the range an employee sits.

Worked example: A range runs $50,000–$70,000 (midpoint $60,000). An employee earning $54,000 has a compa-ratio of 54,000 ÷ 60,000 = 0.90 and range penetration of (54,000 − 50,000) ÷ (70,000 − 50,000) = 20%. That is consistent with a relatively new or developing employee — appropriate, not alarming.

Internal Equity vs. External Competitiveness

• Internal equity asks: are jobs of comparable value paid comparably within the company? Job evaluation drives this.
• External competitiveness asks: how does our pay compare to the market? Salary surveys and benchmarking drive this.
• Individual equity asks: are two people in the same job paid fairly relative to performance, experience, and seniority?

Common Traps

• Evaluating the person, not the job. "She's a hard worker" is not a job-evaluation factor. New duties might be — re-evaluate the role.
• Green-circle / red-circle confusion. A red-circled employee is paid above the range maximum (often frozen until the range catches up); a green-circled employee is paid below the minimum (usually scheduled for correction).
• Paying above range to fill a role. The defensible fix is to re-examine the range against the market or seek a documented exception/approval — not to silently exceed the structure.

Market Data and Survey Discipline

A pay structure is only as good as the market data behind it. HR benchmarks jobs against salary surveys — third-party, published, or custom surveys that report what comparable employers pay for comparable jobs. The PHR expects you to match the survey job to your job by content, not by title, because the same title can mean very different work across companies. A defensible benchmark matches roughly 70% or more of the job's actual duties.

From survey data the organization chooses a pay policy line — the desired position relative to market. A lead strategy pays above market (often the 75th percentile) to attract scarce talent; a lag strategy pays below market (e.g., the 25th percentile) to control cost; a match/meet strategy pays at the median (50th percentile). The chosen percentile typically becomes the range midpoint. Recognizing this language — percentile, midpoint, lead/lag/match — is frequently tested.

Broadbanding and Range Maintenance

Some employers replace many narrow grades with a few wide broadbands, giving managers more flexibility to move pay within a band without a formal promotion. The trade-off is reduced control and a greater need for strong manager judgment and audit. The PHR may contrast traditional graded structures (more control, more administration) with broadbands (more flexibility, more discretion risk).

Ranges must be maintained over time. As markets move, HR applies a structure adjustment (shifting the whole range up by a percentage) separate from individual merit increases. Confusing the two is a classic error: moving the range does not automatically raise any individual's pay, and giving a merit raise does not move the range.

Putting the Math to Work

Consider a grade with range $48,000–$72,000 (midpoint $60,000). Three employees:

• New hire at $50,000: compa-ratio 0.83, penetration ~8% — appropriate for someone still learning.
• Solid performer at $60,000: compa-ratio 1.00, penetration 50% — squarely at the market reference point.
• Long-tenured expert at $71,000: compa-ratio 1.18, penetration ~96% — near the ceiling, so future increases may need a lump-sum award rather than a base increase to avoid breaching the maximum.

When you can read those three numbers and explain what each implies about an employee's standing in the range, you are doing exactly the analysis PHR pay-structure questions ask for. Always tie the recommendation back to job-related data and the approved structure, never to an incumbent's personal lobbying.