What Is the Factor Evaluation System?

Small-business owners are generally required to comply with the same federal and state wage and employment guidelines as their large-business counterparts. Compliance obliges even a small business to establish a fair and reasonable pay and promotion structure. The factor evaluation system is an option for creating an equitable system, as it bases pay on an objective assessment of the relative worth of a job.

A factor evaluation system is structured, consistent and objective. These characteristics are what allow the system to proactively address and prevent future issues regarding wage equality for different jobs within the business. The structure of a factor system is made up of the points or factors used to measure the relative worth of individual jobs. Once established, the factor system becomes the standard the business can use for not only for setting wages but also in establishing qualifications relating to hiring and promotions, implementing performance management and employee training and development programs.

A factor is a major classification category that identifies aspects of a job for which the business is willing to pay. The most common compensable factors in a small-business factor evaluation system include skills, responsibilities, effort and working conditions. Each compensable factor includes a number of sub-factors that further categorize aspects of a job into more specific components. For example, the skills category can include sub-factors such as experience, education or training and ability. Responsibilities can be either supervisory or fiscal and effort can be divided into mental and physical. Working conditions often break down into location, hazards, physical demands and environmental extremes.

While the number of compensable sub-factors is based on the total number of attributes for which the business is willing to pay, the relative weight each carries is often linked to the business’s vision. The more closely a sub-factor links to the business’s vision, the greater its compensable value. For example, while education and training may be more highly valued and compensated for in a computer repair shop, a retail store may place a higher compensatory value on supervisory skills and physical coordination. Weighted percentages are then assigned a specific number of points that when added together create a point score for a specific job.

Pay schedules or grades are typically set using the business’s annual budget and local, regional or national salary market data. Each schedule sets the wages for a job based on its total points. For example, a three-tier schedule might include jobs totaling from one to 40 points in the first tier, jobs totaling from 41 to 75 points in the second tier and jobs totaling from 76 to 100 points in the third tier. Each tier links to a specific wage range, with the first tier typically being the lowest and the third tier the most highly compensated.