Determining compensation ranges for positions across a department or organization can be one of the most important processes any organization undertakes. The pay ranges for employees at all levels impact compensation compliance, pay equity, workforce engagement, as well as the financial wellbeing of the organization.
But what's the best way to determine fairly and with precision how to compensate sometimes complex roles and reporting relationships? Compensation consultants use a variety of methods. Examples include point factor methods and even automated job evaluation systems, among others.
At Gallagher, our compensation consulting team uses one of the most precise and sophisticated, yet simple, compensation evaluation methods available. Where other methods may return variable results, the Gallagher HR & Compensation Consulting team has found that this approach delivers consistent and reliable results to uncover and resolve unfair gender and race differences, among other pay equity issues. It's called the Decision Band Method® (DBM).
DBM developed to address payment inequality
In the 1960s, England's Queen Elizabeth recruited a renowned expert to address a thorny problem. She commissioned Thomas T. Paterson, PhD, Scottish archaeologist, paleontologist and world authority on business administration, to bring order to the racial pay disparities in the diamond mines of South Africa. He postulated that the character of the decisions that employees make in carrying out their responsibilities could distinguish one job from another, and help to determine fair compensation.
Paterson argued that in any organization, there are six types of decisions with associated positions to address them:
- Setting the primary goals for the main purpose of the entire organization.
- Developing the overall strategies and tactics to carry out the main purpose.
- Determining the staffing, equipment, budgets and day-to-day guidelines to accomplish the strategic goals, adapting the organization to current and future environments.
- Charting how best to proceed when faced with multiple ways to accomplish a task.
- Performing the processes and appropriate procedures and methods.
- Enacting the procedures in a fairly straightforward manner.
DBM case study: Comparison of compensation methods exposes critical fairness issues
HR practitioners might well ask how one set of six types of decisions can evaluate the complexity, authority, responsibility, skills and experience needed for all the jobs in any type of organization. The following case study illustrates how Gallagher evaluated the Decision Band Method against a commonly used compensation method to expose and resolve race and gender pay disparities in a large organization.
Across 200 distinct jobs, Gallagher evaluated each job with the "tried-and-true" point factor system of 11 factors, including knowledge, experience, accountability, impact of error, supervision, working conditions and others. Gallagher examined each of the jobs and verified them to ensure correct hierarchy, and then evaluated the same jobs using DBM.
Several important differences between the methods quickly emerged:
- Efficiency: DBM allowed for evaluation of each job within about 10 minutes, compared to about 30 minutes per job using point factor method.
- Specificity: The point factor method did not easily address multiple levels of supervision and required manipulation to account appropriately for separation between supervisors and DBM did not exhibit that problem.
- Accuracy: DBM replicated the hierarchy produced by the point factor method. To be fair, while not all jobs were the same, the overall hierarchy was similar. However, DBM resolved supervisory issues and "supervisory stacking" that sometimes occurs in which multiple positions supervise a particular job. DBM sorted out the variety of supervisory levels that the point factor method could not.
Critically, when Gallagher compared the results of the Decision Band Method with internal pay and market pay, DBM resolved existing gender and race issues. In other words, the female-dominated jobs received better credit under the Decision Band Method than under general point factor methods.
A second test reveals gaps in comparative method reliability
Despite such compelling results, Gallagher applied one more test to examine the reliability of each method across instances of job evaluation by different evaluators.
Three evaluators examined the same job three times over a course of three months. Using a point factor method, no evaluator delivered the same points for the same job. Further, even the same evaluators did not replicate their own results over the three times they evaluated the job.
Gallagher tried the same process using DBM and saw amazing results. Each evaluator generated the same result for each of the three times he or she evaluated the job. DBM delivered perfectly reliable results. By contrast, when Gallagher used the point factor method, the results varied by evaluator for the same role with each application.
DBM demonstrates resiliency and associated employee satisfaction
In continuing to use DBM with this public sector organization and with other organizations, Gallagher verified the resiliency of the classification structures they established. In other words, new jobs or changed jobs fit into the scheme very well. In rewriting a job description or using "key words" to achieve a higher evaluation score, employees could not "cheat" the system.
As a further benefit, employees of the organization seemed to understand the rationale behind evaluation of jobs using DBM better than evaluation of jobs using the point factor method. The HR Department received fewer reclassification requests. The focus changed from requesting a reevaluation to matching the job to the correct or best market. Employees seemed more satisfied.
When the stakes are high in determining compensation compliance and pay equity, Gallagher's experienced team has found job evaluation using the Decision Band Method to be the industry gold standard. DBM is faster, more reliable, and less susceptible to manipulation for better overall organizational wellbeing.