External market pay and internal job evaluation: is a hybrid approach emerging?

IES News

3 Apr 2018

A new article highlights how UK approaches to base pay setting, unlike North America, are seeing something of a compromise between the two main methods – job evaluation and market pay levels. The article, composed by IES head of HR consultancy, Duncan Brown, and E-reward’s managing partner, Michael Armstrong, contrasts the UK approach to that of the United States where, as one client recounts, a ‘job is worth what the market says it is worth’.

Beyond criticisms of traditional job evaluation methods and despite market pay pressures, the authors cite a range of studies including the recent IES research on behalf of the Office of Manpower Economics, with evidence that job evaluation is ‘alive and well’ in the UK.

However, the differing approaches highlighted in the article present a real question around the purpose of job evaluation: is it about internal relativity or external competiveness? An excessive internal focus can create difficulties in recruitment and retention. Yet an extreme market pricing emphasis risks the importation of gender bias evident in the external market for predominantly female-held roles. Equal pay and gender pay gap reporting support this importance of having a strong internal justification for pay differences. Some jobs are also difficult or impossible to match externally – as illustrated by the IES research on doctors’ pay.

In fact external market surveys often use job evaluation to match jobs in different employers, illustrating the potential complementarity and interdependence of the two approaches.

As well as an evidence- and research-driven critique, the article also offers practical advice to HR professionals, revealing that a policy of tailored ‘best fit’ is generally preferable to copying supposed ‘best practice’ in determining an employer’s base pay management approach. Ensuring that these processes remain simple and flexible appears vital, in order that UK organisations are best-placed to respond to internal as well as external challenges.

Read the article