Job evaluation is the process of figuring out how much a job is worth to create a job structure for a business. It evaluates the position, not the performance of employees. These evaluations are extremely important to companies because they provide the basis for pay rates. There are three major approaches to job evaluation a company can use.

The Ranking Approach

In the ranking approach, company representatives take each job and figure out how much it is worth to the business. This of course varies depending on the company's objectives and methods of operation. For example, technical support might be more important to an online retailer than an on-site retailer. Using this method requires businesspeople to ascertain how each job is connected to each business function. If a job is connected to many functions, it usually gets a higher ranking and pay assignment.

The Classification Approach

The classification approach puts jobs into classes or groups. In this method, jobs with similar requirements are kept together. For example, the positions of treasurer and accountant would be in one class because they both require working with economic data. The benefit of this method is that employees can understand that their pay rate is not completely subjective and is comparable to the pay rates received by others within the company.

The Point Approach

With the point approach, company agents list components with which to evaluate each job. For example, one component might be physical effort or the amount of supervision the job requires. Each component has a specific point value assigned. Company agents go through each job and identify which components apply to each position. The more points a job gets, the more valuable it usually is to a company and the higher pay rate it typically gets. This method is expensive but is probably the most scientific.

Why There are Different Approaches

Companies use different approaches to job evaluation and creating job structures largely because every company is different and has its own needs. For example, in a large company, the simplicity of the ranking method might be problematic, because there are dozens of individual positions. A small company, by contrast, could find the ranking method is suitable because there are not that many positions to define.

Multiple Approaches

Often, companies complete more than one evaluation using different approaches. The advantage of doing this is that it gives a company a better sense of whether the job structure it has created is accurate; it removes subjectivity. There thus is not really a "best" approach, because all approaches can be used in conjunction with each other.