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Hay Job EvaluationFoundations and ApplicationsThe Hay Method of Job Evaluation continues to be the most widely acceptedworldwide, in use by over half of the world’s 50 largest companies as well as ingovernment, public, and not-for-profit institutions.The process of evaluating jobs enables many important applications, such asdesigning effective organizations; clarifying interdependencies and accountabilities;managing succession and talent; and setting competitive, value-based pay policies.WORKINGP A P E R

Hay Job EvaluationFoundations and ApplicationsIntroduction1Hay Job Evaluation: Foundations2So, Who Is Accountable? [sidebar]Hay Job Evaluation Factors3AccountabilityKnow-HowProblem SolvingLegal Aspects of Hay Job Evaluation [sidebar]5Hay Guide Charts Job Size and ShapeApplications of Hay Job Evaluation78Organizational Design and AnalysisStep DifferencesJob Design and Analysis10Job/Person Matching11Succession Planning and Development12Pay Structures and Grading13The Job Evaluation Process14Conclusion15About Hay GroupCopyright 2005 Hay Group, Inc. All rights reserved.

IntroductionIn the 1990s, the Internet and its parallel business boom fueled a war fortalent, creating a belief that organizations either move at “e-speed” or riskbeing passed by start-ups with radically different business models. As a result, manyorganizations sacrificed disciplined processes that for years helped them controlcosts—especially pay-related costs. The even more challenging post-tech boombusiness environment, however, made those same organizations realize that any lostTo ensure a reasonable balancediscipline meant higher costs, inconsistency, and a potential loss of defensibleobjectivity related to pay programs.between flexibility and control,To ensure a reasonable balance between flexibility and control, Hay Group is workingmany organizations arewith many organizations to revamp the processes through which those organizationsrevamping the process throughvalue work. One key driver is the need to reestablish discipline within compensationprograms, and to better align pay with value creation—particularly at executive levels.which they value work.Beyond that, our job evaluation processes help well beyond defining appropriatepay levels. Evaluating jobs not only provides consistent work value measurement,it also gives organizations a common framework and language to design jobs,define career progressions, analyze organization structures, and more strategicallymanage human resources.This paper provides an overview of the Hay Guide Chart -Profile Method of JobEvaluation and introduces a number of valuable applications. One key finding ofour research with WorldatWork and Loyola University of Chicago (of more than1,200 organizations) indicates that between 82% and 96% of organizations evaluatejobs, but only 18% proactively maintain their systems. Moreover, a majority reportsthat they believe approximately 20% of jobs are incorrectly placed within the jobgrading structure. As a result, we believe there is significant untapped potential toleverage job evaluation efforts to optimize organizational structures, develop peopleas key performers, and build employee commitment through reward programs thatare fair, motivational, and competitive.1WORKINGP A P E R

Hay JobSo, Who Is Accountable?The Hay Guide Charts are ourproprietary instruments thatyield efficient, consistent, andlegally defensible evaluations.A clear understanding of impact and itsrelation to overall accountability is criticalwhen designing and evaluating jobs.Consider the case of a major hotel chainCEO who ruled that the annual planningaround “rack rates” for each property wouldbe shared between the managers of nationalsales and operations. He reasoned that if heleft it only to national sales, then the hotelmanagers would blame them if they did notachieve their goals. Likewise, if he delegatedit just to the hotel managers, then nationalsales could blame the hotel managers if theyfailed to attract accounts to their properties.Just when it looked like he had agreement,the Finance Director complained that shehad the most critical information on pasttrends plus impact on profitability underdifferent scenarios. She believed she shouldshare in—or maybe even drive—the decision.The CEO, however, wisely decided that threepeople responsible for making decisionswould slow the process. In addition, havingthe Finance Director make the decisionwould give the national sales reps and hotelmanagers an excuse to hide behind in notmaking their numbers.Clearly, the Finance Director had to contributeto the decision. The national sales people andhotel managers could not make decisionswithout relevant financial information. Byproperly defining concurrent accountability,the CEO actually sped up decision-makingand increased accountability for results.The “Impact” element when evaluatingaccountability can be segmented alongfour lines: Ancillary. Informational, recording, or2WORKINGP A P E Rincidental services for use by others inrelation to some important end result. Jobactivity may be complex, but impact onthe overall organization is relatively minor.These jobs are usually involved withcollection, processing, and explanation ofinformation or data, typically required byothers to make decisions impactingorganizational results.(continued)Evaluation:FoundationsHay Group pioneered the “factorcomparison” job evaluationmethod and modified it in its GuideCharts in the early 1950s. The Hay GuideCharts are proprietary instruments thatyield consistent and legally defensiblework evaluations. Hay Group’s jobevaluation approach, in fact, is the world’smost widely accepted—used by anestimated 8,000 organizations, includinghalf of the Fortune 50 companies.Organizations use the Hay methodologyto evaluate jobs against a set of commonfactors that measure inputs (requiredknowledge, skills, and capabilities),throughputs (processing of inputs toachieve results), and outputs (end resultexpectations from applying inputsconstructively). During the evaluationprocess, each job’s content is analyzedrelative to each factor and representedby a numerical value. These factor valuesare then totaled to determine the overalljob “size.” The various job size relationships, as well as the factor proportionsassociated with each job, can be usefulin a number of organizational andhuman resource planning applications.

Hay Job Evaluation:FactorsThe input-throughput-output modelis reflected in the Hay Method as KnowHow, Problem Solving, and Accountability.Each grouping can be further brokendown into eight elements for the workvalue assessment. Contributory. Interpretive, advisory, orfacilitating services for use by others intaking action. This type of impact isappropriate where jobs are accountablefor rendering significant “advice andcounsel” in addition to information and/oranalysis and when decisions are likely tobe made by virtue of that counsel. Suchimpacts are commonly found in staffor support functions that significantlyinfluence decisions relative to themagnitude of various resources.Every job exists to add value Shared. Participating with peers, withinThe output factor—Accountability—is covered first, since every job isdesigned to achieve predeterminedresults. This factor typically receives theleast attention and weight in manyother evaluation methodologies.AccountabilityEvery job exists to add organizationalvalue by delivering some set of results(or outputs). Accountability measuresthe type and level of value a job can add.In this sense, it is the job’s measuredeffect on an organization’s value chain.It has three dimensions:1.Freedom to Act: The degree ofempowerment to take action andthe guidance provided to focusdecision-making.2.Scope: The businessmeasure(s) the job is designedto positively impact.3.Impact: The nature of the job’sinfluence on business results.or outside the organization, in decisionmaking. This impact is used to describehorizontal, not vertical (hierarchical),working relationships. This type of impactis not totally controlling relative to themagnitude of the result. Shared impactstypically exist between peer jobs and/orfunctions, and suggest a degree of“partnership” in, or “joint accountability”for, the total result. For example, theremay be shared accountability betweenengineering and manufacturing functionsfor a successful product. Sharing is alsopossible with “partners” outside theorganization (e.g., between projectmanager and external contractor). Whenthis impact is selected, it is important toclarify specific role contributions and toidentify initiators as well as tie-breakersfor decision making.to the organization throughdelivering some set of results. Primary. Controlling impact on endresults, where any contributing inputs aresecondary. Such impacts are commonlyfound in operations and managerialpositions that have “line accountability” forkey end-result areas, whether large orsmall. For example, a supervisor may have“primary accountability” for the productionor output (value added) of a unit withinthe context of available resources (e.g.,personnel resources and controllableexpenses); whereas the head of manufacturing may have a primary impact ontotal value added in the manufacture ofproducts or on cost of goods manufactured. The key here is that the job existsto have the controlling impact uponcertain end results of a given magnitude,and that accountability is not intended tobe shared with others. 3WORKINGP A P E R

Know-HowTo achieve the accountabilities of a job requires “Know-How” (or inputs), which is thesum total of every capability or skill, however acquired, needed for fully competent jobperformance. Know-How has three dimensions:4.Technical/Specialized Skills: Depth and breadth of technical or specializedknowledge needed to achieve desired results.5.Primary impacts are commonlyManagerial Skills: The requirement to undertake managerial functions,such as planning and organizing staff or directing and controllingresources, to achieve business results over time.found in operations and6.managerial positions that haveHuman Relations Skills: The interpersonal skills required for successfulinteraction with individuals and groups, inside and outside the organization.“line accountability” for keyProblem Solvingend result areas, whetherThe value of Know-How is in its application to achieve results. “Problem Solving”large or small.(or throughputs) refers to the use of Know-How to identify, delineate, and resolveproblems. We “think with what we know,” so Problem Solving is viewed as utilizationof Know-How, and has two dimensions:7.Thinking Environment: The job’s context and the degree to which problemsand solutions are defined.8.Thinking Challenge: The nature of addressable problems and the difficultyin identifying solutions that add value.Problem Solving measures the requirement to use Know-How conceptually,analytically, and productively.The above factors can be modified in specific client situations, but the patternaround the three clusters relates to the inputs, throughputs, and outputs of thedefined position.Although the definitions of these job criteria have evolved over the more than 60years they have been used, the underlying principles of Know-How, Problem Solving,and Accountability have been timeless as a general foundation for valuing work.4WORKINGP A P E ROur factors have also been widely accepted as a basis for setting fair and equitablepay practices, and are compliant with the U.S. Equal Pay Act of 1963 and Canadian

provincial pay equity legislation. (Formore on this subject, see the sidebar onthe Legal Aspects of the Hay Method ofJob Evaluation.)The Hay Guide Charts The Guide Charts are Hay Group’sproprietary instruments that enableconsistent work evaluations. Eachof the above factors—Know-How,Problem Solving, and Accountability—has its own Guide Chart that reflectsthe subelements identified above(see Figure 1).Each Guide Chart scale is expandable toaccount for the complexity and size ofthe organization to which it is applied,and the scale descriptions can bemodified when appropriate. An important distinction is that the HayMethodology can be calibrated to thevalue systems of other organizationswithin Hay’s compensation databases.This enables a wide range of benchmarking activities, potentially improving theaccuracy of market pricing and increasing confidence in job evaluation results.Legal Aspects of the Hay Guide Chart Profile Method of Job EvaluationThe Hay Method can be a useful tool inmeeting a global employer’s legal andregulatory challenges. The Hay Guide ChartProfile Method of Job Evaluation is genderneutral and has not been found to bediscriminatory or unlawful in any reportedlegal decision.Our factors have also been widely acceptedas a basis for setting fair and equitable paypractices, and are compliant with the U.S.Equal Pay Act of 1963 and Canadianprovincial pay equity legislation, whichrefers to job-to-job comparisons based on“skill, effort, and responsibility.” Our methodhas been court-tested time and again, andhas proven to be legally defensible sinceits inception.Our methodology can becalibrated to the valuesystems of other organizationswithin the Hay databases.Working conditions such as physicalenvironment, hazards, manual effort, andmental concentration can also be added toaccount for job-context factors. However,many of these factors—unlike the three Hayfactors identified above—can be potentiallydiscriminatory, so there needs to be acompliant process to design and utilizesupplementary factors alongside theGuide Charts.The Hay Method is the job evaluation methodof choice of many public and privateemployers, mainly because of the strongbelief that the Hay Method will serve thembest if legal challenges arise. For example,the New Mexico State Supreme Court hasestablished a compensation plan for alljudicial branch employees in New Mexico,and has mandated by Judicial Rule that al

Hay Job Evaluation: Factors The input-throughput-output model is reflected in the Hay Method as Know-How,Problem Solving,and Accountability. Each grouping can be further broken down into eight elements for the work value assessment. The output factor—Accountability— is covered first,since every job is designed to achieve predetermined results. This factor typically receives the least .