Your job-grading system may be the problem

May 04, 2009 Business Daily, Management

“Most companies grade their employees’ jobs using some kind of ranking or rating system based on job evaluation. The grades assigned are intended to assess fair pay for people doing the same work, and are usually public, like the letter grades of schools. In theory, these systems are supposed to help people manage their careers, by providing a comparison of jobs and individuals’ competence across a large organization. But in practice, they have a terrible side effect: They end up adding to the costs of bureaucracy, frustrating employees, and undermining leadership development.”

BRIAN DIVE, Strategy+Business (April 14, 2009)

I know what you’re thinking: now there’s something wrong with job grades? Those sacraments of human-resource management – what can be wrong with them? They are usually based on scientific job evaluations; they allow for fair pay scales across the organisation; and they allow people to manage their careers by giving them a series of rungs to climb.

But grades are dangerous, says Brian Dive in S+B. For one thing, they introduce a bad incentive in the organisation: to create bigger budgets and add staff. Because job evaluations are often linked to the budget controlled and the number of direct reports, it is in every manager’s interest to pitch for a bigger budget and lobby for more reporting staff. That way, the manager gets a bigger job and a better grade. And the easiest way to do this is to add another layer of people in the organisation. This may explain why, over time, large organisations end up having such a large number of job levels.

Grading systems can also kill leadership development. It becomes very tempting for leaders to add rungs to the ladder, simply to provide staff with the illusion of a career path – as long as you’re moving up step by step, you’re doing OK. You keep getting ‘promoted’, so you imagine you’re being appreciated and valued. But often, this kind of rung-hopping is empty of meaning. Jumping one little level every year may not produce the bigger leaps in competence that your best people should be aiming for.

Dive recommends a system of jobs based on accountability. He suggests what we should really ask ourselves is: what does this job actually do? What value does it add to the customer? What is this job responsible and accountable for? If organisations follow this method and create “levels of accountability” rather than job grades, then promotions will be less of a routine advancement, and linked more to performance and productivity.

Is it catching on? The idea certainly has some serious adherents. Global consumer goods giant Unilever was a pioneer, deciding to base “work levels” on decision-making: what decisions are taken at a particular level, that could not be taken higher or lower? Simply asking that question across the world resulted in 17 grades being replaced by just five work levels, for a big chunk of staff. Compensation, organisational design and career progression is now based on those work levels.

Tesco, Britain’s dominant retailer, also went down this path. Its boss, Terry Leahy, put it well: “I want a system that is simple, clear, and transparent, which managers understand, trust, and then forget about and get on and serve our customers.” In fact, Tesco inverted its organisational pyramid, putting customers at the top and customer-facing jobs higher up the scale.

It may take a while before that kind of thinking catches on here, methinks. For civil servants, accountancy and legal practices, and large manufacturing outfits, job grades are held sacred: the more the merrier. But if you are wondering why you have so much bureaucracy at your organisation, with so little work done that is actually valued by customers to show for it, the answer may lie in your trusty grading system.